Bangkok: Trump’s 100% tariff in retaliation for China’s control of rare earth minerals is having a severe impact on financial markets and the global economy, pushing gold prices higher. Gold prices are expected to test 65,000 baht by the end of this year. Thai authorities are advised to ease monetary easing to cope with the economic slowdown at the end of the year.
According to Thai News Agency, Assoc. Prof. Dr. Anusorn Thamjai, Dean of the Faculty of Economics and Director of the Digital Economy, Investment and International Trade Research Center (DEIIT) at the University of the Thai Chamber of Commerce, said the trade war between China and the United States has flared up again after China issued measures to control rare earth minerals. China can control the supply of up to 70% of these rare earth minerals, which are essential components in the production of many technological products, including electric cars, military radars, and aircraft.
The tightening of restrictions on rare earth exports to the United States has had a devastating impact on the US technology and military-industrial complex. The Trump administration responded by threatening 100% tariffs on Chinese goods, a move that financial markets did not anticipate as most investors viewed improving economic relations between the US and China along with improved ties between the leaders of the two superpowers, who are also scheduled to meet at the APEC summit later this month. A sharp retaliation with 100% tariffs would likely have a severe impact on financial markets.
The US stock market lost more than $2 trillion in a single day on Friday, the sharpest drop in six months, and this factor is expected to push global stock markets lower next week. Global financial markets and the economy will face significant volatility if the Trump administration implements its threatened 100% tariffs. Global financial markets and the economy also face risks and uncertainty over whether China will retaliate with tariffs. For Thailand, the Thai export sector will be further impacted by the global economic and trade slowdown caused by the new US-China trade war. However, some Thai exports will benefit from import substitution for Chinese goods in the US market.
However, the impact assessment remains unclear as we still don’t know the future dynamics of the new US-China trade war. Thailand’s manufacturing sector will undoubtedly face an influx of goods from China. These risk factors have further driven investors away from risky assets to safe havens like gold and bonds, pushing the gold price above $4,000 per ounce and pushing domestic gold jewelry prices to 62,100 baht per baht weight, potentially testing 65,000 baht by the end of this year.
Assoc. Prof. Dr. Anusorn Thamjai, Dean of the Faculty of Economics and Director of the Digital Economy, Investment, and International Trade Research Center (DEIIT) at the University of the Thai Chamber of Commerce, stated that the Thai government should further ease monetary pressure to address the impacts. This easing will prevent the baht from strengthening excessively, benefiting the export sector and the tourism sector, boosting economic growth. Further interest rate cuts are likely. Current fiscal policy only alleviates the problem. Further investment expansion is needed to stimulate employment and lay a long-term economic foundation, which may not be fully achieved under an interim government.
The government should adopt proactive policies, such as providing support loans, implementing measures to protect domestic industries, and employing non-tariff barriers if necessary. Industrial restructuring and promoting SMEs, including small and medium-sized enterprises, must emphasize supporting research and innovation infrastructure, as well as adjusting the tax system to create incentives and enhance competitiveness through higher productivity. Several studies have found that Thailand’s total productivity growth is lower than 1.2-1.3%. Based on the experience of countries that have managed to escape the middle-income trap, such as South Korea, Taiwan, and Singapore, the government must play a role in promoting and developing the country’s manufacturing capabilities to enhance global competitiveness.