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With nearly a year of trade dispute between the United States and China, it has become apparent that the global economy will slow down, and this will have a direct impact on world trade. We adopt a vector autoregressive model to examine the impact of the U.S.–China trade war on the Thai economy. The results indicate that Thailand's output and exports to key markets are adversely affected by the escalating trade dispute. The slowdown in the Chinese economy will also put further downward pressure on world commodity prices, which in turn will reduce Thailand's exports.

In the past three decades, with the exception of the Asian financial crisis in 1997–98, the Thai economy was propelled by the rapid growth of manufactured exports. There were 18 years of a double-digit export growth, averaging 20.5 percent per year. In 2009, Thailand's exports collapsed after the 2008–09 global financial crisis, but rebounded sharply in the following year. Thailand's exports growth significantly slowed down in 2011 and 2012. From 2013 to 2016, Thailand's exports experienced negative growth. The global recession and China's slowdown contributed to the dismal export performance. There was also a supply factor responsible for the negative growth, however. The dwindling level of foreign direct investment (FDI), caused by Thailand's political turmoil and pessimistic business sentiment, has diminished export capability and competitiveness. The fall of Thailand's export-oriented industries can be attributed to the country's inability to attract FDI inflows. Some industries that are able to secure continuous flows of FDI remain competitive, whereas others that cannot will progressively retreat from the world market.

During Thailand's economic development, the shares of output and employment in agriculture have been consistently higher than in other countries at the same level of income. There are push and pull factors for labor transformation. This paper demonstrates that the slow transformation from rural to urban economy is the result of the agricultural trap, which keeps agrarian labor inside the farm sector. In addition to the lack of public investment in human capital, extremely wasteful farm subsidies have weakened the natural process of structural transformation. Farm subsidies encourage land expansion, which usually lags behind commodity booms, resulting in the excess supply of farm products. In turn, when commodity prices collapse, excess supply perpetuates further subsidies and emboldens the pork barrel activities of incumbent governments.

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