US President Donald Trump has set his trade war sights on Thailand, punitively revoking the kingdom’s duty-free treatment on US$1.3 billion worth of goods at a time the two sides’ relations were on an upswing after a prolonged downturn.

The Office of the US Trade Representative (USTR) announced on October 25 it would punitively lift approximately one-third of Thailand’s General System Preferences, or GSP, trade over its “failure” to adequately protect workers’ rights, including in the crucial fishery industry.

The USTR said the penalty stemmed from a American Labor and Congress of Industrial Organizations (AFL-CIO) petition that, despite six years of engagement, claimed Thailand still fails to allow for sufficient freedom of association and collective bargaining among workers.

The announcement, which insiders say the US Commerce Department signaled was forthcoming as early as July, came after Thailand banned three agricultural chemicals, including glyphosate, that will significantly curb imports of US soybeans and other crops grown in swing states Trump hopes and needs to carry at 2020 elections.

Thai officials, both in local media and in communication with Asia Times, have played down the economic impact of the penalty, which despite affecting 573 products, including all seafood exports, will impact .01% of exports, or around .15% of gross domestic product (GDP).

Thailand’s GSP status, granted to the world’s poorest countries to trade their way out of poverty, was poised anyway to be lifted as a middle-income nation with a GDP per capita of $7,275 in 2018.

But the fact that Trump punitively imposed the GSP measure, namely over labor issues that the US had commended and upgraded Thailand for making progress on in its 2018 Trafficking in Persons (TIP) report, raises questions if more bilateral trade turbulence is on the horizon.

US President Donald Trump (R) gazes upon Thai Prime Minister Prayut Chan-ocha (L) in a 2017 file photo. Photo: AFP

The timing of the punitive announcement was also diplomatically damaging, coming just a week before Thailand serves as proud host of the Association of Southeast Asian Nations (ASEAN) annual summit at which world leaders will be in attendance, though Trump is not expected to be among them.

Thailand features prominently on a list of nations with large trade surpluses with the US, ranking 11th globally in 2016 at the time of Trump’s election. The US president has called for investigations into those imbalances and worked to narrow the gaps through better terms of trade.

Thailand had a $19.3 billion goods trade surplus with the US in 2018 and there are indications that figure could rise this year if current trade trends hold.

During a White House visit in October 2017, coup-maker Prime Minister Prayut Chan-ocha vowed to purchase as many as 20 Boeing passenger planes for national flag carrier Thai Airways and US-made military hardware including helicopters.

In August this year, Thailand’s military announced plans to purchase 120 American-made armored vehicles by 2020, though Bangkok paid for only 47 of the first 70 of the vehicles to be delivered this year, with the US agreeing to supply 23 for free in a sweetheart deal between the long-time allies.

In September, Thailand agreed to purchase eight Boeing attack helicopters and reconnaissance aircraft, as well as air-to-surface missiles, in a deal valued at $400 million.

The two sides appeared to be making up for lost trade time, as the US was banned until democracy-restoring elections held this year from supplying certain lethal equipment to the Thai military in punitive response to Prayut’s 2014 democracy-suspending coup.

A Thai Airways Boeing 747 passenger jet comes in for a landing in a file photo. Photo: Twitter

But it’s not clear now that those sales will be enough to satisfy Trump, particularly as questions swirl over whether Thai Airways will make good on Prayut’s multi-billion-dollar vow to purchase US-made passenger jets amid new signs of financial distress at the national carrier.

There are also indications that the US Embassy in Bangkok has taken an active interest in an ongoing standoff between US energy giant Chevron and Thailand’s Ministry of Energy over which side should shoulder the cost of dismantling offshore platforms in the Gulf of Thailand after Chevron’s production concession recently expired and was given to state-owned PTT.

The Thais have played down the commercial conflict, claiming a resolution is close at hand, while Chevron has indicated it will take the case to international arbitration if not resolved to its satisfaction within this month, according to sources familiar with the situation.

The impasse has also cast a cloud over ExxonMobil’s proposal to invest as much as $12 billion in a petrochemical expansion project that, if allowed to go ahead, could serve as a key investment pillar in the government’s Eastern Economic Corridor (EEC) industrial project that has so far generated lackluster foreign interest.

It’s unclear if Trump’s decision to suspend part of Thailand’s GSP trade preferences, while small in relative trade terms, served as a warning of a potential bigger conflict if Bangkok fails to make more concessions to US business interests and uphold its previous “made in America” import promises.

That could include designation as a currency manipulator, which if made could block access to entire US markets. Thailand is currently on a US Treasury Department watchlist of nations that reputedly intervene in currency markets to depreciate their units and boost their export competitiveness.

“The bigger issue is whether [the GSP issue] paints a target on Thailand in the US Treasury report on currency manipulators,” says one analyst with a major investment fund. “Thailand fits most of the categories, and could face some retaliation pressure from the US.”

Those criteria include a large trade surplus with the US, a large current account surplus of over 3% of GDP, and evidence of one-sided and persistent currency intervention by buying dollars in offshore markets. The Bank of Thailand, the kingdom’s central bank, has consistently denied it manipulates the value of the local unit, the baht.

Indeed, the baht is Asia’s best performing currency, appreciating over 7.8% against the US greenback so far this year and hitting a six-year high of 30.2 to the dollar on October 25.

Currency strength, in Thailand’s context, however, is a sign of economic weakness, as a lack of currency-deflating capital goods imports points to laggard new manufacturing investments. Thailand’s real effective exchange rate, the currency’s weighted average compared to trade partners, is at its highest level since before the 1997-98 Asian financial crisis.

That’s hurting export competitiveness, with particular impact on agriculture, agro-business and apparel, in an economy where shipments make up 70% of GDP. It’s also taking a toll on tourism, estimated to contribute as much as 20% of GDP, particularly among cost-conscious Chinese travelers that make up over one-third of arrivals.

Some analysts suggest Trump’s GSP salvo could also serve as a tacit warning over Thailand’s broad economic relations with China. Unlike Vietnam, Thailand has not yet been associated with transshipment, a practice in which Chinese exports are minimally processed and then re-exported as a product originating from a second country to avoid US trade war-imposed tariffs.

Any evidence that the practice has taken root in Thailand, analysts say, would give the US Treasury Department more ammunition to label the kingdom as a currency manipulator based on a bulging current account surplus. A second Treasury Department review of Thailand’s currency management is set to be released in November.