Trade policy risks resurface after Trump unveils tariffs of 20–50%. Excess supply continues to pressure China’s economy.
US
U.S. economy is showing clearer signs of a slowdown in 2H25, supporting views of 2-3 more rate cuts this year. Initial jobless claims dropped by 5,000 to 227,000 for the week ending July 5—the lowest level in 7 weeks. However, a report from ADP indicated that private-sector hiring declined in June, marking the first drop since March 2023. This reflects growing uncertainty in the labor market.
Trade tensions escalated after President Trump announced tariffs of 20–50% on goods from over 27 countries, including a 50% tariff on copper, set to take effect on August 1. He also plans to impose tariffs of up to 200% on imported pharmaceuticals, which could further disrupt supply chains and raise the cost of living for consumers. Meanwhile, the Fed has signaled further rate cuts this year amid slowing economic momentum, driven by trade pressures, immigration restrictions, tight financial conditions, and high delinquency rates. Given these factors, Krungsri Research expects the Fed to cut its policy rate by another 2–3 times this year.
Japan
The Bank of Japan (BOJ) may keep its policy rate unchanged through year-end given elevated economic risks and slowing inflation. BOJ data show that Japanese automakers cut export car prices to the U.S. by 19.4% YoY in June, the steepest decline since 2016. This suggests Japanese firms are sacrificing profits to remain competitive after the U.S. imposed a 25% tariff on automobiles starting in April.
Japanese inflation is expected to ease in 2H25, supported by government measures such as rice stockpile releases and energy subsidies. However, external risks remain high—particularly the threat of further US tariffs. Trump has warned of a potential 25% tariff on Japanese agricultural and automotive exports if a trade agreement is not reached by August 1. Given these risks and softening inflation, Krungsri Research expects the BOJ to refrain from additional rate hikes in the near term, aiming to support Japan’s economic recovery through the end of 2025.
China
China remains under persistent pressure from excess supply. Headline inflation in June remained below 1% YoY for 28 straight months, while the Producer Price Index (PPI) fell deeper from -3.3% to -3.6%, the sharpest decline since July 2023. This is in line with industrial profits, which shrank by -9.1% in May and -1.1% over the first five months of this year.
Low headline inflation and falling producer price index reflect excess supply in the manufacturing and real estate sectors. This continues to weigh on businesses and the overall economy despite the government’s efforts to stimulate demand through trade-in subsidies since last year. Clear signs of recovery in China’s excess supply issue have yet to emerge, and it may take several more years before the excess supply no longer exerts a negative impact on the economy. Moreover, if the trade war between China and the U.S. re-intensifies, export growth may slow down, worsening challenges in the manufacturing sector, which depends more on foreign demand to offset weak domestic demand.
Thai exports risk facing U.S. import tariffs of up to 36% if trade talks fail to reach a deal by August 1.
Krungsri Research estimates that a 36% U.S. tariff could result in Thai export losses of THB 162 bn. If Thailand exempts U.S. goods from tariffs, it may face a "Twin Influx" risk. On July 7, Thailand received a letter from the U.S. notifying plans to impose tariffs of 36% on Thai goods, effective August 1, if no new trade agreement is reached. Recently, the Thai government has submitted revised trade proposals (see table) and is actively seeking further negotiations to secure a lower tariff rate.
If Thai exports are subjected to a 36% U.S. tariff — a relatively high rate compared to other U.S. trading partners and significantly higher than regional competitors like Vietnam, which negotiated a reduced rate of 20% (and 40% for suspected transshipment). Krungsri Research estimates that, in this scenario, Thailand could see export losses of THB 162.1 bn. The most affected industries would be Textiles, Leather and Footwear, Electronics and Electrical Equipment, Food and Beverages, and Rubber and Plastics.
If Thailand and the U.S. reach a trade deal similar to the U.S.-Vietnam agreement, with the US imposing 20% tariff on Thai goods and Thailand imposing zero tariff on U.S. goods, the impact on Thai exports could be less severe by 9.3 times than under the case of a 36% reciprocal tariff, or equal to export losses of THB 17.4 bn. However, offering zero tariffs to the U.S. may reduce one problem while creating another, particularly the risk of a surge in Thailand’s imports from the U.S. Our model suggests that in the long term, Thailand’s imports from the U.S. could surge by 27%, or THB 188.3 bn. Sensitive sectors, especially Agriculture and Food and Beverages, could see an influx of U.S. goods at a rate of over 100%. Other sectors could also experience a double-digit increase in imports from the U.S., including Motor Vehicles and Transport Equipment, Textiles, Leather and Footwear, and Rubber and Plastics.
Opening the market to more U.S. products in exchange for tariff reductions may lead to a “Twin Influx” — a simultaneous surge of imports from both the U.S. and China into Thailand. Ultimately, this situation could undermine Thailand’s competitiveness and negatively impact the domestic manufacturing sector, particularly agriculture, which employed 28.6% of the labor force (in 2024). Amid escalating trade tensions between the U.S. and China, Thailand may have limited options for retaliation. Therefore, it is crucial to accelerate efforts to diversify export markets, pursue trade negotiations with other countries, and seriously address long-term structural issues—all of which would help reduce vulnerability to major countries’ trade policies.
