Thailand revises factory gauge after US transshipment concerns
Manufacturing accounts for about a quarter of Thailand’s GDP and employs more than 6.2 million people.
Thailand is making changes to a key measure of factory output following concerns raised by US officials. These officials noticed a growing gap between rising exports and falling domestic production, which could indicate that goods are being transferred through Thailand to avoid tariffs. This issue has become a weakness in Thailand's trade talks with the United States.
While exports increased by 20.8% in June from the previous year, the Manufacturing Production Index fell by 3.1%. Thai officials dispute the notion that this discrepancy indicates transshipment, the process of routing goods through a country to bypass tariffs. Instead, they claim the factory gauge is outdated and focuses too much on traditional industries, failing to account for fast-growing areas like semiconductors and electronics related to artificial intelligence.
Danucha Pichayanan, secretary-general of the National Economic and Social Development Council, stated that the index should be updated as soon as possible because it has become a weak point in tariff negotiations. Deputy Prime Minister and Finance Minister Ekniti Nitithanprapas aims to complete the revision by September. Thai authorities examined export and production data and found no evidence to support the transshipment explanation.
The Manufacturing Production Index relies partly on estimates and voluntary submissions from manufacturers, which hinders its ability to capture changes in production. To address this, Thai agencies plan to revise the index to 2024 instead of 2021. This modification will better reflect newer industries, such as semiconductors and photonics, which are not currently adequately captured by the index.
Manufacturing contributes roughly a quarter of Thailand's GDP and employs over 6.2 million people. The persistent discrepancy between weak factory data and surging exports has made it more difficult to assess the health of Thailand's manufacturing sector and has complicated efforts to attract foreign investment.
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