Thailand’s green manufacturing strategy is no longer just an environmental initiative — it is an economic survival plan. Thailand’s competitiveness will depend on how quickly the country can convert climate pressure into a strategic advantage by 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 (EVs), wind turbines and advanced electronics. A pause in tariff action in mid-August 2025 was followed by renewed tensions in October, alongside US 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.
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 politicised inputs. The European Union’s Carbon Border Adjustment Mechanism (CBAM) ends its transition phase in December 2025 and will begin charging in 2026, placing 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 2025, with the Office of the National Economic and Social Development Council reporting 2.8 per cent GDP growth in the second quarter of 2025 and a double-digit export rebound. Yet these gains were concentrated in internationally traded, manufacturing-adjacent segments, while domestic demand and energy-price pass-through constrained margins. This illustrates Thailand’s high exposure to global trade dynamics, with external policy shocks — namely tariffs and CBAM — posing outsized risks.
Electric mobility is where momentum is strongest. Between July and September 2025, authorities adjusted EV3 and EV3.5 incentive packages to relax local-content ratios, promote exports and de-risk investment timelines. Battery-electric vehicle registrations in the first half of 2025 rose by more than 50 per cent 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, signalling export intent and improving 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 of power interconnections 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 modernisation as export policy. Cheaper, cleaner electrons underpin competitive factories.
Geopolitical dynamics are also reshaping cost structures. China’s tighter export controls and prospective US tariff escalation show how quickly input prices and availability can shift. The Pentagon’s stockpiling of critical minerals adds further demand pressure. For Thailand’s green manufacturers resilience now requires political foresight alongside economic calculation.
Firms will need multi-sourcing strategies, selective localisation and inventory policies calibrated for political volatility. Adding to this, the United States announced new trade and critical minerals agreements in Southeast Asia on 26 October 2025. 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 already exhibit significantly higher technical efficiency. Recent research links green production practices to improved efficiency — an observational relationship, but a clear policy signal. Institutionalised green management extracts more output from a given set of inputs.
The transition risk is dual speed. Export-facing multinationals adapt quickly. But small- and medium-sized enterprises (SMEs) — representing the majority of all establishments — often lack finance, training and certification pathways. An ageing workforce intensifies skills gaps, raising execution risk for decarbonisation. Without just-transition measures, workers face displacement and firms face productivity and compliance losses. Weak labour standards and poor traceability expose supply chains to CBAM, ESG and buyer-exit risks, particularly for SMEs.
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, emissions registries and a basis for future emissions trading schemes. Domestic carbon pricing, once seen as politically difficult, is becoming structurally necessary. Without it, Thai firms risk regulatory mismatch with peers that are already internalising carbon costs.
The immediate task is to convert this bold 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 politicised, competitive margins will narrow and favour those countries and firms that internalise carbon costs early. To succeed in this environment, Thailand must legislate and sequence carbon disclosure and pricing and 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 inputs through multi-sourcing and targeted localisation. Sustainable supply chains will hinge on labour 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, Chulalongkorn University and serves as Director and Coordinator of the Labour Research and Coordination Research Unit (CU-COLLAR).
Yot Amornkitvikai is Associate Professor (Economics) at the College of Population Studies, Chulalongkorn University.
https://doi.org/10.59425/eabc.1763719200
