Thailand’s green drive reflects China-US trade frictions

Thailand’s green manufacturing strategy is no longer just an environmental initiative – it is an economic survival plan. Bangkok’s competitiveness will depend on how quickly the country can convert climate pressure into a strategic advantage.

This will involve aligning domestic carbon policy, clean power and supply chain resilience with shifting trade geopolitics. The operating environment for Asian manufacturers is changing. 

The United States has increased its “reciprocal” tariff rates, while China has tightened export controls on rare earths and permanent magnets – key inputs for electric vehicles or EVs, wind turbines and advanced electronics. 

A pause in tariff action in mid-August was followed by renewed tensions in October, alongside American plans to stockpile critical minerals. For trade-exposed economies, supply chain policy now intersects directly with national security.

These developments raise immediate questions for Thai firms regarding alternative sources for materials. Contingency plans in the event of disruptions and the exposure of export prices, as carbon-related costs are applied, need to be addressed.

Climate targets

This turbulence coincides with Thailand’s efforts to reposition itself as a value-based, low-carbon manufacturing hub. Long-term climate targets now collide with a global regime of carbon-adjusted trade and politicized inputs. 

The European Union’s Carbon Border Adjustment Mechanism, or CBAM, ends its transition phase in December, and will begin charging in 2026. This will place demanding compliance timelines on Thai firms working in these value chains.

Macroeconomic indicators offer a mixed picture. Output and exports rebounded in the first half of this year. The Office of the National Economic and Social Development Council reported 2.8% GDP growth in the second quarter of 2025, and a double-digit export rebound. 

Yet these gains were concentrated in trade and manufacturing-adjacent sectors. Domestic demand and energy-price issues constrained margins. This illustrated Thailand’s high exposure to global trade dynamics, with tariffs and CBAM posing outsized risks. 

Electric mobility is where momentum is strongest. Between July and September, Bangkok authorities adjusted incentive packages to promote exports and de-risk investment timelines. EV registrations in the first half of 2025 rose by more than 50% year-on-year. 

The revised terms provide clearer pathways for battery and component makers through 2027. 

This shows how targeted green industrial policy can function both as climate strategy and as an investment magnet, anchoring demand. Again, this will signal export intent and improve Thailand’s position in the contest for green foreign direct investment.

Clean manufacturing requires clean, reliable power. The ASEAN Power Grid is envisioned as a regional network that would allow member states to trade electricity efficiently, pool resources and tap underused renewable potential for collective benefit. 

Thailand should treat grid connectivity and modernization as export policy. Cheaper, cleaner electricity underpins competitive factories.

Geopolitical dynamics are also reshaping cost structures. China’s tighter export controls show how quickly input prices and availability can shift. The Pentagon’s stockpiling of critical minerals adds further demand pressure. 

Political volatility

For Thailand’s green manufacturers resilience now requires political foresight alongside economic calculation.

Firms will need multi-sourcing strategies, selective localization and inventory policies calibrated for political volatility. Adding to this, the US announced new trade and critical minerals agreements in Southeast Asia in October. 

These agreements included increased cooperation with Thailand and Malaysia to diversify supply chains away from China and secure alternative rare earth pathways. Higher resilience is often assumed to mean higher costs. But the evidence is more complex. 

Thai manufacturers that adopt environmental management systems, engage workers and make their supply chains green will have significantly higher technical efficiency. Recent research links green production practices to improved efficiency – a clear policy signal. 

Still, the transition risk is dual speed. Export-facing multinationals adapt quickly. But small- and medium-sized enterprises or SMEs representing the majority of companies often lack finance, training and certification pathways. 

An aging workforce intensifies skills gaps, raising decarbonization risks. Without transition measures, workers face uncertainty and firms face productivity and compliance losses. Weak labor standards and transparency issues also expose supply chains to CBAM regulations.

One remaining gap is operational carbon pricing. The forthcoming Climate Change Act aims to provide the legal foundation for net-zero by establishing carbon budgets. Once seen as politically difficult, it is becoming structurally necessary. 

Without it, Thai firms risk regulatory mismatch with peers that are already internalizing carbon costs.

The immediate task is to convert this climate vision into investable certainty. Thailand needs a durable regime of carbon accountability, sectoral transformation and geopolitical hedging.

As trade becomes carbon-priced and inputs become politicized, competitive margins will narrow and favor those countries and firms that internalize carbon costs early. To succeed in this environment, Bangkok must legislate and sequence carbon disclosure and pricing.

Critical materials

It must pair this legislation with SME-focused revenue recycling and productivity support during the transition. 

Thailand must also lock in clean power contracts for priority industrial clusters and de-risk critical materials through multi-sourcing and targeted localization. Sustainable supply chains will hinge on labor standards, traceability and worker voice, not carbon metrics alone.

If Thailand advances on these fronts, green manufacturing will become both a climate commitment and a pillar of economic statecraft. The country has the industrial base, the geographic position and – if it acts decisively – the tools to get there.

Ruttiya Bhula-or is Associate Professor at the College of Population Studies at Chulalongkorn University in Bangkok. Yot Amornkitvikai is Associate Professor (Economics) at the College of Population Studies at Chulalongkorn University in Bangkok.

This edited article is republished from East Asia Forum under a Creative Commons license. Read the original article here.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy of China Factor.