Thailand’s trade deal reveals US-China proxy fight shaping global economy
Globalization, we were promised, would render borders porous, ushering in an era of frictionless trade. Supply chains would stretch across continents, and efficiency would be the supreme virtue. Yet, here we are, scrutinizing a seemingly celebratory 19% reciprocal tariff rate between Thailand and the US, only to find it tethered to a bureaucratic string: Rules of Origin. What sounds like dry trade jargon is actually a high-stakes proxy fight, a ground-level skirmish in the larger battle over who shapes the global economy, and on whose terms. As Khaosod reports, the stakes are stark: avoid compliance, face a crippling 40% tariff.
These “Rules of Origin,” ostensibly designed to prevent Chinese goods from fraudulently claiming Thai provenance, are more than simple tariff enforcement. They’re a lever in the ongoing geopolitical tug-of-war between the US and China. The 19% tariff may sound attractive, but its promise is contingent on unraveling a complex question: How much “Thai-ness” must a product possess to qualify?
“Raising the RVC was difficult, but there was no time to wait. If the US makes a requirement, Thailand must fulfill it immediately as it cannot take five years to adjust. The question is where the raw materials should be sourced from, whether domestically or abroad. Solutions are still being discussed.”
The Regional Value Content (RVC) requirement is, as always, where the devil resides. Industries such as plywood and medical devices, which rely heavily on domestic materials, find themselves in a relatively secure position. But sectors like cosmetics, electrical engineering, steel, and oil refining are far more vulnerable. The Thai gem and jewellery sector’s reliance on raw materials from China and Australia underscores the challenge of erecting purely “local” supply chains in a globalized world — a world where competitive advantage has often meant skillfully integrating into international networks.
To understand this pressure, one must look beyond the immediate transaction. The Trump administration’s trade war with China, while framed as a response to trade imbalances, was fundamentally about technological and economic dominance — about containing China’s ascent. These Rules of Origin represent a continuation of that strategic logic, albeit under a more palatable guise. It’s a pressure tactic, forcing nations to implicitly, or explicitly, choose sides in the burgeoning US-China rivalry.
This isn’t just a Thai predicament; it lays bare the inherent fragility of global supply chains, particularly for developing economies. The emphasis on RVC, while seemingly equitable, ignores the historical trajectory of industrial development. Developing nations typically integrate into global value chains by specializing in specific production stages, not by erecting self-contained, autarkic ecosystems. Think of Mexico’s automotive industry, deeply integrated into North American supply chains — success came through specialization, not self-sufficiency.
The United States is wielding its immense market access as a strategic weapon, a strategy not entirely novel. Recall the Bretton Woods agreement and the subsequent creation of GATT and the WTO. The US, then the undisputed economic hegemon, shaped the rules of global trade to reflect its own interests and values. These ostensibly bilateral agreements aren’t about leveling the playing field; they are about tilting it in a new direction, recalibrating it for a world where geopolitical competition takes precedence over economic efficiency. The potential cost: higher prices, reduced access, and a slowdown in global growth.
The imposition of stringent RVC targets is implicitly a challenge to Thailand’s industrial policy, a policy that has, for decades, benefited from the ease of access to cheaper inputs. As political economist Richard Baldwin argued in “The Great Convergence,” global supply chains were a crucial catalyst for rapid economic growth in developing countries, drastically lowering barriers to entry. This is, in essence, a move to selectively raise those barriers.
Forcing Thailand to abruptly restructure its production processes risks stifling innovation, hindering economic diversification, and ultimately reversing decades of progress. As one Thai official concedes, the government now faces the arduous task of “negotiat[ing] with each industry and clearly explain[ing] who can and cannot meet the requirements.” The future of Thai industry, and, in some sense, the future of global trade, hinges on the outcomes of these negotiations.
Thailand’s situation serves as a stark microcosm of a far broader global shift. We are rapidly entering an era of “friend-shoring” and “resilience,” a world where economic efficiency increasingly takes a backseat to geopolitical calculus. The critical question is whether this nascent world order will usher in greater stability or simply lead to a more fragmented, more expensive, and ultimately, less prosperous global economy. And for Thailand, the paramount challenge isn’t merely meeting Washington’s demands but preserving its own strategic autonomy in a world increasingly defined by great power competition and the ever-lengthening shadows they cast.
