A version of this article has been published in the Bangkok Post on November 28, 2023.

Thailand finds itself at a crossroad as global geoeconomic alignments shift amid rapid changes in the technological landscape. Its top trading partners and foreign investors are changing, raising concerns about the relevance of its development model. While boosting competitiveness remains crucial, Thailand must also avoid trade and investment concentration and diversify its external linkages.

The US-hosted Asia-Pacific Economic Cooperation—or APEC—CEO Summit took place last week in San Francisco, bringing together world leaders and top CEOs to discuss the future of trade and growth in the 21-member bloc.

For Thailand, it was yet another opportunity to advocate its investment potential to the rest of the world: Thailand Prime Minister Srettha Thavasin’s week-long trip was packed with meetings with top US tech firms—including Tesla, Amazon, Google, Microsoft, and NVIDIA, among others.

This strategy is not new. For decades, Thailand’s trade and investment flows have grown hand-in-hand with regional and global integration. Nevertheless, while its total trade has quadrupled since 2000, Thailand now trades mostly with Asia. The US remains its top export market, but China has risen to become the second largest.

On the investment side, Japan still accounts for the largest share of foreign direct investment (FDI) due to its dominance in conventional auto manufacturing. However, China and ASEAN have expanded their investment stakes rapidly, while shares of traditional partners like Europe and the US have fallen.

China’s deepening footprint is clearest. It doubled its share of Thai exports over 20 years, and has been the biggest source of imports for a decade. China has also overtaken Japan as the top source of new FDI applications since 2019 (barring the pandemic years), with major bets in Thailand’s “new S-curve” sectors like electric vehicles, or EVs, and renewable energy. Chinese automakers now dominate Thailand’s emerging EV industry, unlike the traditional internal combustion engine auto industry, where Japanese and Western firms reign.

These shifts are driven by both push and pull factors. Multinationals have sought to diversify their supply chains to build resilience after the recent pandemic disruptions. They see Thailand’s extensive links with Asia, competitive infrastructure relative to its peers, and openness as key strengths. But Thailand’s auto manufacturing niche has also predisposed it to forge closer ties with Japan—and now China. Still, an increased reliance on any one partner would raise overdependency risks. This was seen when Thailand’s local electronics supply chains stalled during COVID-19, amid its heavy exposure to Chinese chips suppliers.

Thailand’s future trade and investment patterns will be shaped by larger global undercurrents, especially the US-China strategic competition, which could accelerate such trends. China has invested heavily in EV manufacturing domestically, but still sees Thailand as an attractive regional production hub that could allow it to work around US tariffs. Growing business ties may also spur associated growth in intermediate imports from China for auto parts manufacturing. And with Thailand as their ASEAN base, Chinese automakers will likely redirect EV exports toward the rest of Southeast Asia and Thai motor vehicle (and related) exports would likely move away from the United States—its largest export destination currently—over time.

Hence, Thailand faces two inter-related economic imperatives. The first is boosting competitiveness. Success here will be vital to capture existing shifts in trade and investment, while bearing in mind that other peers—in and outside Asia—are making similar plays. Efforts on digitalization, infrastructure and reforms remain crucial, but must be accompanied by improving lagging factors like skills development. This will help anchor foreign business activities amid the persistent winds of global competition and geoeconomic realignment.

Alongside competitiveness, Thailand must also guard against overdependence risks by keeping its external economic links diversified. This means redoubling efforts on free trade agreements, especially with economies like Korea and Mexico where export shares are already substantial. Thailand should also explore agreements with emerging partners in the Middle East, South America, and South Asia to expand its markets. Such proactive moves will build resilience against future external shocks.

In navigating the new geoeconomic realities, Thailand will need to strike a fine balance between seizing the best opportunities for trade and investment while mitigating the pitfalls of over-reliance on any single market. This two-pronged approach requires enhancing competitiveness at home while seeking more diversification abroad. How Thailand carries this delicate balancing act will determine its prosperity in an increasingly complex world order.

A more detailed discussion of these issues can be found in “Shifting Ties: Thai Trade and Investment Amid Geo-Economic Changes,” by Marthe Hinojales, in page 47 of AMRO’s 2023 Annual Consultation Report on Thailand.