Geopolitical tensions are expected to ratchet up after American jets downed four flying objects in the past 10 days, including a suspected Chinese spy balloon off the Carolina coast on Feb 4.
Brokerage ING said in a note on Feb 6 the incident could exacerbate the "tech war" and would have a negative near-term impact on China's yuan currency.
Both sides will likely impose more export bans on technology in different industries. This is a new risk for supply chain disruption, even as logistics are freed from Covid-19 restrictions, ING warned.
With the US and China major trade partners for Thailand, accounting for 16.6% and 12% of shipments respectively, heightened tensions are likely to affect export prospects, according to the Thai Commerce Ministry.
Several forecasting institutes predict export growth to slow from 5.5% in 2022, in line with weaker demand from major trading partners.
Q: How will the tech war affect Thailand's trade and investment this year?
Poonpong Naiyanapakorn, director-general of the Trade Policy and Strategy Office (TPSO), said US-China trade spats and retaliatory measures implemented since 2018 are likely to become more intense and cover other areas, especially in technology, which is related to economic stability and plays a key part in the relationship between the two countries.
Although the US and China have yet to impose any retaliatory measures that may affect bilateral trade and investment after the balloon saga, TPSO is following the issue.
A recent TPSO study found intensified competition and technological polarisation between China and the US has a high likelihood to both benefit and damage Thailand.
Thailand may become an alternative production venue for the US and companies in China, attracting more investment from firms looking to relocate their production bases.
According to Mr Poonpong, key concerns in the stand-off are US reshoring measures and military tensions between Taiwan and China that may adversely affect Thailand's foreign direct investment prospects.
Reshoring or friend-shoring are terms used to describe US manufacturers' strategies to pivot away from China to secure supply chains either close to home or in nations with which America has a better relationship, such as Mexico or India.
East Asia has traditionally been used for a significant share of global manufacturing because it was a cheaper option. China has invested billions of dollars in port infrastructure and new container ships over the past two decades to create efficiencies that have served to protect manufacturers' bottom lines.
He said possible disruption of the world's semiconductor supply and the negative impact on countries that produce related products, including Thailand, could happen if the Taiwan-China situation becomes more heated.
Taiwan produces up to 65% of the global semiconductor output, around nine times the volume made in China. Taiwan Semiconductor Manufacturing Company supplies more than 90% of the world's most advanced semiconductors.
In the short term, it would be impossible for any company to compensate for the reduced chip supply entirely if Taiwan and China reach a stand-off, said Mr Poonpong.
The conflicts could also change the climate for global investment, production, trade and supply chains, leading to new barriers for advanced technology between the two economic leaders and their alliances. This may affect the world's economic performance or trigger a global recession, as well as accelerated inflation in line with higher costs and volatile capital movement, according to the TPSO report.
Q: Which sectors could be hardest hit by the heightened tech war?
According to the "Mid-Decade Challenges to National Competitiveness" report by the Special Competitive Studies Project, founded by former Google head Eric Schmidt, the US could be at a technological disadvantage if it does not take dramatic action on three core fronts: semiconductors, artificial intelligence and 5G.
China continues to invest heavily in the three "battlegrounds" for technological superiority, the report concluded.
The years between 2025 and 2030 represent a critical window for the new tech arms race, in which Beijing might win an edge if its plans work out, according to the report.
Mr Poonpong said the US-Sino tensions could have a significant impact on the Thai electrical appliance, electronic and vehicle sectors.
Stephanie Khrisnan, associate vice-president for Asia-Pacific at IT market research firm IDC, said the escalating tensions could mean reduced global trade and investment, negatively affecting Thailand's economy, which heavily relies on exports.
She said the impact would be felt in the manufacturing sector, such as electronics, automotive, industrial machinery, food and beverage as well as chemicals.
Q: How can Thai entrepreneurs prepare to curb the impact of the spat?
Thai entrepreneurs should work to become more agile in coping with geopolitics, including speeding up investing in the US and China as well as countries that have supply chains for both, said Mr Poonpong. For the US, this includes Mexico, Canada and Latin American countries, while for China this comprises Asian nations and countries taking part in the Belt and Road Initiative.
More importantly, Thailand should attract foreign direct investment in advanced technology while expediting infrastructure and skilled worker development for target industries, he said.
Mr Poonpong said Thailand needs to become part of key supply chains (such as semiconductors and clean energy technology) with the US and its partners under the Indo-Pacific Economic Framework for Prosperity (IPEF).
IPEF is an economic initiative launched by US President Joe Biden on May 23, 2022. The framework launched with 14 founding nations, with the late entry of Fiji representing the first South Pacific island to join. There is an open invitation for other countries to join at any time.
The four themes of IPEF are: fair and resilient trade; supply chain resilience; infrastructure, clean energy and decarbonisation; and taxes and anti-corruption.
Mr Poonpong said Thai entrepreneurs should not be heavily reliant on any one country to reduce possible risks from supply chain disruption and diversify their businesses, especially in technology areas that are a focus for the US and China.
As both nations try to manufacture more domestically or promote relocation of production bases to friendly nations, Thailand should seek to form more trade partnerships with new partners, he said.
Q: How would Thailand benefit from US-China tensions?
Paul Srivorakul, co-founder and chief executive of aCommerce, a Southeast Asia e-commerce enabler, said Thailand can benefit from the trade "diversion effect", where companies shift their sourcing or production from China to Thailand because of the trade tensions and tariffs imposed by the US.
This leads to increased demand for Thai goods and services, boosting exports and economic growth, he said.
Thailand has developed strong economic and diplomatic ties with China, including significant investments in infrastructure and trade. China comprises 12% of Thailand's exports, compared with 10% for the US, said Mr Paul.
Thailand also has a close relationship with the US and a long history of trade, military and political cooperation, he said. Thailand could benefit from being a mediator, improving trade relations with both the US and China as they look to reduce their dependence on each other, said Mr Paul.
"Thailand will play a crucial role in balancing the power dynamics between the US and China, increasing its regional and geopolitical importance," he said.
The US-China conflict also gives Thailand a strategic advantage because of its geographic location and its positive relations with both the US and China, which could potentially be leveraged as a neutral platform for conducting business between the two countries, said Mr Paul.
Q: Which businesses are likely to relocate to Thailand from China?
He said several companies are already diversifying their sourcing away from China to favour more Southeast Asian markets such as Thailand, which will necessitate reconfigurations of their logistical setup. Thailand is well positioned as a logistics and manufacturing hub.
Manufacturing and supply chains, especially those for apparel, consumer electronics, and home and lifestyle products are likely to migrate to many Southeast Asian countries, including Thailand, said Mr Paul.
Several global companies already have manufacturing and headquarters in Thailand, such as Toyota, Unilever, Nestle and Samsung.
This is driven in part by favourable trade agreements, such as the Regional Comprehensive Economic Partnership, external political factors and the capabilities of these countries, he said.
Teerit Paowan, an analyst at IDC Thailand, said some large companies that previously manufactured products in China have already relocated factories to Thailand to minimise the risk of trade disruptions or tariffs.
This shift can bring new investment, jobs and technology to Thailand, helping to boost the local economy and creating new opportunities for businesses in the electronics supply chain, said Mr Teerit.
Most of the companies that relocated are in the auto parts, electronics and machinery businesses such as Sony, Nikon, Bridgestone, Mercedes and Samsung, he said.
Q: What are Thailand's strengths that can attract foreign businesses?
According to Mr Paul, Thailand is a great logistics and supply chain hub because of its well-developed and extensive transport network and infrastructure that includes several international airports, modern highways, new railways and port systems.
Thailand has a strong, diverse and developed manufacturing sector, including the electronics, automotive and food processing industries, he said.
Other essential infrastructure advantages are Thailand's reliable and affordable energy supply for both conventional and renewable sources as well as a developed financial services sector, with a strong banking system and a thriving stock market that is vital in supporting the country's industrial and economic growth, said Mr Paul.
Lastly, Thailand's skilled workforce and low cost of living make it economical and attractive compared with other countries in the region, he said. Thailand also benefits from increased investment in infrastructure development as China expands its Belt and Road Initiative, such as the high-speed train project, while the US seeks to counter China's influence.
"Thailand should gain technological advancements as both the US and China look to transfer technology to the region as part of their economic and strategic goals," said Mr Paul.
"All of this makes Thailand a more attractive investment destination as investors look to avoid the risks associated with US-China tensions."
As to potential downsides, Mr Teerit said the increased competition could make it harder for local businesses to thrive as they may not be able to compete with the lower costs and larger scale of international companies.
In addition, the influx of new investment and technology could create a skills gap in the local workforce, as Thai workers may not have the necessary training or experience to meet demand, he said.
Q: Given these risks, what are Thailand's export prospects this year?
Mr Poonpong said the escalated tech war, a projected global economic slowdown, relatively high oil prices and the ongoing baht appreciation all represent real risks to Thai exports this year.
Yet there are still a number of supporting factors such as higher global demand for food, the normalisation of logistics and transport services, lower freight rates and an easing of the container shortage.
More importantly, he said the economies of Thailand's target markets remain robust, including the Middle East, South Asia, China and Asean, especially Cambodia, Laos, Myanmar and Vietnam.
Following a recent meeting of the Joint Public and Private Sector Consultative Committee on Commerce, which includes the Thai Chamber of Commerce, the Federation of Thai Industries and the Thai National Shippers' Council, the entities projected Thai export growth of 1-2% this year to US$289 billion.
In 2022, Thai exports expanded by 5.5% to $287 billion, while imports rose by 13.6% to $303 billion, resulting in a trade deficit of 16.1 billion.
