U.S. Tariffs Aimed at Thailand Backfired
- Cristabelle Chang
- Oct 23
- 5 min read
By Poom Tientamnoon
Edited by Raymond Ozols-Szoke
Introduction
Theoretically, reciprocal tariffs are supposed to be America’s greatest economic weapon to protect itself from other countries. However, once the theory joins in with reality, tariffs are really seen as a double-edged sword. This article will dive into how reciprocal tariffs negatively affect foreign countries, specifically Thailand’s, but more importantly how they backfire onto America’s economy.
To understand the effect of these reciprocal tariffs, we will first need to define what a reciprocal tariff is. A reciprocal tariff is a type of trade duty imposed by one country on imports from another at a rate meant to retaliate or match the tariff percentage that the partner country puts on its exports.
On April 2, 2025, President Donald J. Trump issued Executive Order 14257 as a reciprocal tariff to prevent economic downturn and to prohibit security issues from ongoing U.S. trade deficits with major foreign trading partners (average rate of 20.4%). As stated in the official executive order, “conditions reflected in large and persistent annual U.S. goods trade deficits constitute an unusual and extraordinary threat to the national security and economy of the United States.”
While reciprocal tariffs have negative impacts on Thailand’s export-dependent economy, they concurrently backfire on the United States by reducing aggregate demand, raising consumer prices, and creating unemployment that undermines long-term growth.
Thailand’s Export Dependence
All GDPs are composed of four main components: consumption, investment, government expenditures, and net exports (C + I + G + (X − M)). For a country like Thailand, net-exports and consumption are the key drivers of economic growth. Although net exports make up the smallest percentage compared to other components, total exports can reach up to 65% of GDP. This shows that exports can play a critical role in Thailand’s overall economy in terms of
keeping the resources and cash flowing.
The United States is Thailand’s largest export destination, with exports valued at $54.96 billion, or 18.3% of all Thai shipments worldwide, making trade with the U.S. essential for Thailand’s economic stability. On July 7th, 2025, the United States issued a 36% reciprocal tariff on Thai imports, which was later reduced to 19% on August 7st, 2025, after negotiations between the two. The main reason given by the U.S. government for this tariff was to address transshipment; they claimed that China was avoiding U.S. tariffs by routing shipments through Southeast Asian countries like Thailand.
The decrease in Thai exports to the United States led to several negative effects on Thailand’s economy. With falling exports, aggregate demand decreased significantly, as net exports directly influence aggregate demand in an open economy. As overall aggregate demand and output declined, which caused a reduction in Thailand’s real GDP.
Lower demand also led to higher cyclical unemployment, as export industries lost their main clients and were forced to cut production. In Thailand’s current account, fewer exports meant less money inflow; if imports stayed the same, this created a trade imbalance. Finally, the decline in demand for Thai exports reduced demand for the baht, leading to currency depreciation in the FOREX market. A weaker baht reflected lower investor confidence and made future exports more difficult, showing how dependent Thailand’s economy is on stable trade relations with the United States.
The U.S. Tariff Reaction
After the United States enacted Executive Order 14257, which imposed tariffs on imports from multiple countries including Thailand, the U.S. placed an initial 36% tariff on all Thai-imported goods. However, due to sharp price increases in the weeks that followed, the tariff was reduced to 19% on August 7th, 2025.
Between July 7th and August 7th, prices of several Thai goods in the U.S. market rose significantly. Leather products such as shoes and handbags increased by roughly 37%, while apparel prices rose about 35% and textiles went up 18%. Although these prices fell somewhat after the tariff reduction, they still remained higher than before any tariffs were imposed, showing the lasting inflationary impact of the policy.
Impact on the U.S. Economy
The economic effects of these price increases were felt immediately by American consumers. Higher tariffs on Thai goods meant higher consumer prices, which in turn reduced disposable income for households. For example, an American consumer purchasing a pair of Thai-made leather shoes would now pay a premium due to the tariff, leaving them with less disposable
income than before.
As imported goods became more expensive, consumers faced lower purchasing power, leading to a decrease in overall household consumption and weakening one of the key components of
aggregate demand: consumption (C).
For U.S. firms that rely on Thai inputs such as components for phones, computers, and tires. These tariffs also caused production costs to surge. Across most industries, input costs rose by an average of 19%, with tire-related categories seeing even steeper increases ranging from 31% to 67%.
As input costs increased, many firms faced reduced profit margins and cut back on investment, discouraging new production and expansion. This reduction in investment not only slowed business growth but also shifted the short-run aggregate supply (SRAS) curve to the left, lowering the real GDP of the United States.
The ripple effects spread across the labor market as well. Industries that depend on Thai intermediate goods particularly in manufacturing and retail would be forced to cut costs, leading to layoffs or slower hiring of workers. With both consumption and investment declining, aggregate demand weakened, slowing U.S. economic growth and lowering real output.
A Double-Edged Sword
This outcome shows how the July/August 2025 tariff policy, intended to stabilize and protect the U.S. economy, instead had the opposite effect. By increasing prices, reducing disposable income, discouraging investment, and lowering output, the policy ultimately weakened the economy it was meant to support.
In theory, reciprocal tariffs sound like a clever way for the United States to protect its economy, by strengthening domestic industries, fixing trade deficits, and standing firm against unfair trade practices. But as seen through Executive Order 14257, the reality is much more complicated.
For Thailand, these tariffs caused serious ripple effects across its export-driven economy. Demand fell, unemployment rose, its current account weakened, and the Thai baht depreciated. These changes showed how much Thailand depends on these stable trade relationships, especially with the United States, and how easily those connections can be disrupted by sudden policy shifts.
At the same time, the same policy that hurt Thailand also circled back to impact the United States economy. Higher tariffs meant higher priced imported goods, which raised production costs for businesses and made everyday products more expensive for consumers. As costs went up, households had less disposable income, and so companies would scale back investment. This combination reduced overall spending, slowed growth, and even caused some job losses in industries that rely on Thai imports. What was meant to protect America’s economy actually ended up weakening it from within.
At the end of the day these reciprocal tariffs are just a reminder that global trade is deeply interconnected. Economic walls don’t just keep others out but they also often trap problems inside. The U.S.-Thailand tariff case shows that when theory meets reality, tariffs rarely deliver the simple protection they promise. Instead, they cut both ways, proving to be the double-edged sword of economics.
Works Cited
The White House. (2025, July). Further Modifying the Reciprocal Tariff Rates. The WhiteHouse.https://www.whitehouse.gov/presidential-actions/2025/07/further-modifying-the-reciprocal-tariff-rates/
Yale Budget Lab. (2025, September 4). The State of U.S. Tariffs. Yale University.
Yale Budget Lab. (2025, July 7). The State of U.S. Tariffs: July 2025 Update. Yale University.
U.S. Trade Representative (USTR). (n.d.). Thailand – U.S. Trade and Investment Summary.
Office of the United States Trade Representative.
World Bank. (n.d.). GDP (current US$) – Thailand. The World Bank Data.
Reuters / Fidelity. (2025, July 28). The United States was Thailand’s third-largest export market in 2024, with trade totaling $45.6 billion. Fidelity News.
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