Thailand’s Bold Response to US Tariffs: BOI Unveils Incentives for SMEs and Manufacturing

Thailand is bracing for a significant economic challenge as the United States imposes a 36% tariff on Thai imports, set to take effect on August 1, 2025. In response, Thailand’s Board of Investment (BOI) has rolled out an ambitious policy package aimed at bolstering small and medium enterprises (SMEs) and fortifying domestic manufacturing, particularly in the electric vehicle (EV) and electronics sectors. With the US accounting for 18% of Thai exports, the tariff hike threatens to erode Thailand’s competitive edge in the ASEAN region, prompting urgent measures to protect the economy.

A Tariff Shock and Thailand’s Export Vulnerability

The announcement of the US tariff hike has sent ripples through Thailand’s export-driven economy. Compared to regional competitors like Vietnam (20% US export share), Malaysia (25%), Indonesia (32%), and Singapore (10%), Thailand’s reliance on the US market places it in a precarious position. The tariff, described as a reciprocal measure by US authorities, could disrupt key industries such as automotive parts, electronics, and food processing—sectors where Thailand serves as a critical production hub for US-bound goods.

The BOI, tasked with promoting investment and safeguarding economic stability, has moved swiftly to address the looming threat. Over the past two months, since the US first signaled its intent to raise tariffs, the agency has engaged in extensive consultations with Thai and foreign investors. The result is a comprehensive policy framework titled the “Thai Enterprise Competitiveness Enhancement Measures for the New Global Era” designed to mitigate the tariff’s impact and reinforce Thailand’s position as a regional manufacturing powerhouse.

Strengthening SMEs and Local Supply Chains

At the heart of the BOI’s strategy is a focus on empowering Thai SMEs, which form the backbone of the nation’s economy but often lack the resources to compete on a global scale. The new measures offer enhanced tax incentives for SMEs that invest in machinery upgrades, automation, digital technology, and energy-saving initiatives. Additionally, businesses adopting international sustainability standards or pivoting to emerging industries will benefit from significant tax breaks, aimed at improving operational efficiency and global competitiveness.

A parallel initiative targets the promotion of local content in high-growth sectors like EV and electronics manufacturing. Companies that source materials and components from within Thailand, as certified by the Federation of Thai Industries’ Made in Thailand (MiT) program, will qualify for a two-year 50% corporate income tax deduction. This measure is intended to deepen domestic supply chains, reduce reliance on imported inputs, and ensure that Thailand retains a larger share of value creation within its borders.

Shielding Industries from US Trade Measures

Beyond supporting SMEs, the BOI’s policy package includes stringent measures to protect vulnerable industries from the fallout of US trade actions. For sectors at high risk—such as auto parts, electrical appliances, electronics, metal products, and light industries—the BOI will impose clear conditions to ensure that exported goods undergo significant transformation within Thailand. This involves a change in customs tariff classification at least at the four-digit level, guaranteeing that Thai manufacturing contributes demonstrably to the final product.

In a bid to regulate investment and maintain fair competition, the BOI is also suspending promotional incentives for certain low-tech industries prone to US trade measures. These include the manufacture of solar panels, vehicle accessories, and decorative parts. In some light industries like furniture, bags, and printing, majority Thai ownership will now be mandatory, except for projects in designated Special Economic Zones. Similarly, sectors facing oversupply, such as downstream steel products including long steel, hot-rolled steel, and steel pipes, will see promotional benefits halted.

Environmental and community concerns are also addressed in the new policies. Businesses involved in metal rolling, casting, or the production of chemical and plastic products will lose land ownership rights and must operate within industrial estates under stricter supervision. These steps aim to balance economic growth with social and environmental responsibility, ensuring that industrial expansion does not come at the expense of local communities.

Balancing Foreign Investment and Domestic Employment

Foreign direct investment (FDI) remains a cornerstone of Thailand’s economic strategy, but the BOI is introducing tighter controls to ensure tangible benefits for the local workforce. Companies with more than 100 employees will be required to employ at least 70% Thai nationals, a move designed to prioritize domestic job creation. Additionally, minimum income thresholds for foreign personnel seeking BOI-related visa and work permit privileges have been set at 150,000 Thai Baht (~US$4,200) per month for executives and 50,000 Thai Baht (~US$1,400) per month for experts. These thresholds aim to encourage knowledge transfer to Thai workers while continuing to attract skilled foreign talent.

These workforce regulations reflect a broader intent to align foreign investment with national interests. By setting clear guidelines, the BOI hopes to create a balanced economic ecosystem where global companies contribute meaningfully to Thailand’s development without displacing local labor.

Targeted Support for Key Export Industries

Looking ahead, the BOI is preparing additional measures to assist industries most exposed to the US tariff hike. Target sectors include food processing, automotive parts, electronic components, household appliances, machinery, equipment, jewelry, and gemstones—all areas where Thailand holds a significant share of US-bound exports. While specifics of these forthcoming initiatives remain under wraps, the focus will likely be on diversifying export markets and enhancing product value to offset the tariff’s impact.

The urgency of these measures cannot be overstated. With the US tariff deadline approaching, Thai exporters face mounting pressure to adapt. The BOI’s proactive stance signals a determination to safeguard the nation’s economic interests, even as global trade tensions escalate. Analysts suggest that while the immediate effects of the tariff may be painful, strategic interventions like those unveiled by the BOI could position Thailand to emerge stronger in the long term.

Regional Competition and Global Implications

Thailand’s response to the US tariffs must also be viewed through the lens of regional dynamics. ASEAN neighbors like Vietnam and Malaysia have already made strides in capturing US market share, often benefiting from trade diversion caused by similar tariffs on other countries. Vietnam, for instance, has seen a surge in electronics and textile exports to the US, while Malaysia continues to strengthen its position in semiconductor manufacturing. For Thailand, maintaining competitiveness will require not only domestic reforms but also a concerted effort to diversify trade partnerships beyond the US.

Moreover, the BOI’s emphasis on EV and electronics manufacturing aligns with global trends toward sustainable and high-tech industries. By incentivizing local content and innovation, Thailand aims to carve out a niche in these fast-growing sectors, potentially attracting new waves of investment even amidst trade uncertainties. However, success will hinge on the effective implementation of these policies and the ability of Thai businesses—particularly SMEs—to adapt to new standards and market demands.

A Path Forward Amid Uncertainty

As the August 1, 2025, deadline for the US tariffs draws near, Thailand stands at a critical juncture. The BOI’s multifaceted approach—spanning SME support, local content promotion, and investment regulation—demonstrates a commitment to navigating this economic storm with resilience and foresight. Yet, questions remain about the broader implications of these measures. Will they be enough to shield Thai exporters from the tariff’s bite? And how will they reshape Thailand’s role in the global trade landscape?

For now, the focus is on action. With industries like EVs and electronics positioned as cornerstones of the recovery strategy, Thailand is betting on innovation and self-reliance to weather the challenges ahead. As reforms unfold, their true impact on the nation’s economy—and its standing in ASEAN—will become clearer, offering a test of whether strategic policy can triumph over external pressures.