Thailand in the Geopolitics of Asia: Four Scenarios and Strategic Options

In a scenario titled "Leveraging Misery," Thailand finds itself amidst a tumultuous landscape where geopolitical tensions escalate, threatening regional stability and security. However, amidst the chaos and uncertainty, geoeconomic trends also present a contrasting narrative of promise and opportunity.

To take full advantage of such a situation, Thailand must navigate the delicate balance between leveraging economic opportunities and mitigating the risks posed by escalating geopolitical tensions. In the event of prolonged conflict, such as a limited war involving China and Taiwan or skirmishes in the South China Sea, Thailand must prioritize measures to safeguard its own security while actively engaging in diplomatic efforts to de-escalate tensions and promote regional stability. By fostering a conducive environment for economic growth, enhancing regional connectivity, and remaining vigilant in the face of geopolitical uncertainty, Thailand can emerge stronger and more resilient amidst the challenges of the current geopolitical landscape.

This envisioned scenario can be achieved through the following strategic options:

1. Strengthening diplomatic alliances within ASEAN:

Recognizing that, in the face of escalating geopolitical tensions, unity within ASEAN provides a crucial bulwark against external pressures, Thailand must prioritize diplomacy and collaboration within the regional bloc. Individually, a single ASEAN member state will struggle to exert significant influence, but collectively, the bloc can wield substantial leverage in regional and international affairs. In a polarized world where geopolitical fault lines deepen, a more unified ASEAN can emerge as a beacon of pre-conflict normality, uniquely positioned as one of the few regions that remain open to both Chinese and Western economies.

2. Leveraging geostrategic assets through regional connectivity:

Bangkok's proposed high-speed rail link to Kunming in southern China offers a dual opportunity. Not only does this infrastructure project enhance Thailand's connectivity within the ASEAN region and with China, but it also provides a crucial exit route for China's goods in the event of disruptions to maritime routes in the East and South China Seas. By speeding up this regional connection, Thailand can gain a huge leverage on the Chinese wartime economy and may yet draw significant interest from the United States, thus positioning Thailand positively and uniquely at the intersection of major power competition.

3. Seizing supply chain realignment opportunities:

In the wake of geopolitical tensions, Thailand stands poised to capitalize on potential supply chain realignments, particularly in sectors vulnerable to disruptions in geopolitical hotspots such as Vietnam and Taiwan. By fortifying its industrial base and attracting investment, especially in sectors such as automobile manufacturing, tourism, and medical technology, Thailand can position itself as a preferred destination for businesses seeking stability and reliability amidst geopolitical uncertainty. The potential relocation of businesses from Vietnam and Taiwan, driven by concerns over conflict-related disruptions, presents Thailand with a unique opportunity to enhance its competitiveness and solidify its position within the global supply chain reconfiguration.

Conclusion

In the scenario of "leveraging misery," Thailand confronts the dual challenges of escalating geopolitical tensions and economic uncertainty. However, by prioritizing diplomacy within ASEAN, leveraging its geostrategic assets through enhanced regional connectivity, and seizing opportunities presented by supply chain realignments, Thailand can navigate these turbulent waters with resilience and strategic foresight. As the geopolitical landscape continues to evolve, Thailand stands ready to harness its economic potential and emerge stronger amidst the storm of geopolitical upheaval.

Summary of scenario by Bhumpat Ngamyingsanga, Researcher, Geopolitics Team, Thailand Development Research Institute (TDRI).

This scenario presents an optimistic view of Thailand's future, focusing on five manageable geopolitical tensions: Israel-Iran, China-Philippines in the South China Sea, Russia-US relations including proxy wars such as in Russia-Ukraine, China-Taiwan, and South Korea-North Korea. These geopolitical tensions, if contained without escalating into full-scale wars, could lead to a form of geoeconomic competition that offers Thailand numerous opportunities for economic development.

In this scenario, against the backdrop of manageable geopolitical conflicts and resulting decoupling and supply chain disruptions, Thailand sees an opportunity to attract additional investment. Potential investments are likely to be directed toward industries such as automotive and medical devices. The primary question is how Thailand can attract advanced technology and high-value-added product manufacturing. In addition, the trend of climate change, coupled with geopolitical conflicts that create uncertainty and risk in energy markets, force Thailand to mitigate risks by accelerating its commitment to energy transition and green business models. More affordable green technology from China and Japan, spurred by geoeconomic competition, gives Thailand greater flexibility for energy transition. Additionally, geopolitical conflicts present Thailand with increasing opportunities to join international agreements and groupings such as the Indo-Pacific Economic Framework (IPEF) and Organisation for Economic Co-operation and Development (OECD), thereby bolstering economic and political ties. Thailand will be more warmly welcomed in international forums than before, gaining more bargaining power as major countries tend to invite neutral nations to join their geopolitical blocs. Western countries, aiming to maintain the liberal order, will not want Thailand to fall under China's influence.

This envisioned scenario can be achieved through the following strategic options:

1. Prioritizing foreign investment and trade as key objectives:

In a politically polarized society such as Thailand’s, attracting foreign direct investment (FDI) and trade can serve as a unifying goal. To achieve this, Thailand should focus on several key areas: reforming the energy sector to embrace green energy, implementing institutional and regulatory reforms to foster a more democratic society, and enhancing government transparency and ease of doing business.

2. Reforming the energy market for greener and more sustainable electricity production:

Thailand should liberalize electricity production by allowing decentralized electricity production and adopting net metering measures. Additionally, Thailand should support initiatives like the Just Energy Transition Partnership and capitalize on international financing for green energy, such as the Loss and Damage Fund of the United Nations Framework Convention on Climate Change.

3. Actively joining international agreements for reform assistance:

Implementing some institutional and regulatory reforms can be challenging and may require external driving forces and technical assistance. Joining international agreements such as the IPEF, OECD, and the EU-Thai Free Trade Agreement will provide the necessary support to increase the chances of successful domestic reforms.

Conclusion

The strategic session effectively mapped out a proactive blueprint for Thailand's path towards a robust, sustainable, and geopolitically stable future. By focusing on key areas such as FDI attraction, sustainable energy transition, and critical reforms in governance and regional diplomacy, Thailand is set to maximize its growth potential and secure a resilient position both regionally and globally. This strategic vision not only anticipates future trends but also sets a comprehensive plan in motion to navigate and capitalize on these developments, steering the nation towards unprecedented growth and stability.

Summary of scenario by Tippatrai Saelawong, Senior Researcher, Geopolitics Team, Thailand Development Research Institute (TDRI).

This is a scenario where geopolitical conditions are managed, but geoeconomic trends are bad for economic development. The United States and China have bifurcated into two technological ecosystems, resulting in extreme decoupling in Thailand.

While there is no hot war between the US and China, poor economic trends force Thailand to straddle between the two Great Powers. Thailand, known for its hedging strategy among Great Powers, cannot choose to commit to either US-based or China-based technological systems. As such, the two co-exist in Thailand,  increasing the cost of maintenance and reducing interoperability among companies and sectors. Such a case of fragmented technological systems also occurred in the past, with the Eastern Economic Corridor, a special development zone established in the east of the country in 2017 as part of the government’s “Thailand 4.0” initiative, where Chinese and US tech companies divided and competed for segments of the area.

Stemming from domestic economic and political troubles, spillover effects such as transnational crimes, atmospheric haze, and immigration will put further economic stress on the country. Thailand's state capacity is expected to remain weak. As a result, Thailand will have less influence in shaping the trajectory of the competition between Great Powers. As geo-economic trends pressure and further constrain Thailand, the country will lack the capacity and will to tackle climate change or support businesses. Beyond Thailand, neighbouring countries are expected to remain restive. Myanmar, Laos, and Cambodia will continue facing economic troubles and remain within China's sphere of influence. Thailand’s formal alliance with the US will make it the odd one out in mainland South-East Asia.

To emerge stronger and cope with poor geo-economic trends, Thailand needs to adopt the following strategic options:

1. Incorporate technocratic advice and new talents

Advancing human capital and incorporating new talent in the public sector is necessary, and the Thai government must heed technocrats’ advice. The current sentiment is that in policy decision-making, political considerations are prioritized over technical ones. Rather than skills and expertise, political appointments are made based on nepotism and political quotas. Technocrats and experts rarely have a voice in decision-making, unlike Thai governments of the past when technocrats and experts played a more significant role in conceiving and implementing policies. This limits the potential for the state apparatus to deal effectively with geopolitical and geo-economic challenges. Furthermore, Thailand needs more talent to join the government. The current public sector human capital is not sufficient to deal with the worsening trend in geopolitics and geo-economics.

2. Build smarter and cleaner infrastructure

Hard and soft infrastructure must be built more smartly and cleanly to attract investments from high-standard businesses from either geopolitical camp aligned with Thai interests. Currently, the government focuses on short-term, politically driven policies, but has failed to demonstrate its commitment to building smart and clean infrastructure to attract investment in the green sector. Focusing on green growth would not only allow Thailand to set standards for the types of investments it attracts but also serve as leverage against the two Great Powers to lessen the impact of geo-economic pressures.

3. Improve policy consistency and adopt a whole-of-government approach to attract foreign investments

Thailand needs to attract foreign investment more consistently. There are policy inconsistencies between the previous government and the incumbent government, and among different government agencies. As such, drastic policy changes and political instability prevent Thailand from attracting investments from high-standard and high-value companies. These companies often end up choosing Viet Nam and Indonesia instead. With clear and consistent policies and a whole-of-government approach, Thailand would be better positioned to choose investments most aligned with national strategic choices to better manage geo-economic tensions.

Summary of scenario by Dr Fuadi Pitsuwan, President, Surin Pitsuwan Foundation.

This scenario explores potential future challenges and strategic responses for Thailand over the next 5 to 10 years. This scenario envisions a future where geopolitical tensions erupt into violent conflict and where geoeconomic trends point towards increasing disruption, leading to significant challenges for the country.

In this scenario,we envisaged a potential conflict between the United States and China over Taiwan. China may decide to use force against Taiwan if it declares independence. ASEAN nations such as Thailand might find themselves caught in the middle, having to navigate complex diplomatic and economic pressures from both superpowers to take sides. This situation could lead to a reconfiguration of regional alliances, increased military spending, and disruptions in trade, particularly in high-tech industries and supply chains heavily reliant on Taiwanese semiconductor production. Simultaneously, a prolonged conflict could also emerge in the South China Sea between China and the Philippines, which could in turn escalate by drawing in other maritime South-East Asian countries and the US, complicating regional security dynamics. Such an escalation would significantly affect maritime trade routes, including the Malacca Strait, which is crucial for China, which relies on this route to import a large percentage of its energy from the Middle East. Further hotspots in the region that would complicate the overall geopolitical instability are the prolonged and violent Balkanization of Myanmar, where clashes between different armed groups spill over into China, Thailand, and India, and a potential Chinese monopolization of the Mekong River, which could lead to conflict with Vietnam.

A potential US-China conflict would force Thailand to choose sides in terms of technology and trade due to technological bifurcation and a complete rerouting of supply chains. Given the economic and geographical realities, Thailand would likely lean ever closer to China. This shift could increase China's leverage over the Thai economy, potentially undermining Thai democratic institutions. Conflict in the ASEAN region could prompt Western companies to leave the area for safety reasons, leading to reshoring or supply chain reconfigurations that bypass Thailand in favour of countries not directly involved in the conflict, such as Indonesia and India. This shift could further strain Thailand's economic growth and stability. Moreover, Thailand faces internal demographic challenges, with a rapidly aging population leading to decreased productivity, a shrinking workforce, and loss of competitiveness in global markets. These factors combined—external economic pressures from geopolitical tensions and internal demographic shifts—present significant challenges to Thailand's economic future.

In response to this scenario, the group outlined strategic policy options for Thailand:

1. Economic reform - free trade agreements

Engaging in free trade agreements, such as the potential Thailand-EU FTA, is a pivotal step in driving the Thai economy towards structural reforms. These agreements would not only open new markets and opportunities for Thai exports but also compel domestic industries to modernize and improve their competitiveness, including the reskilling and upskilling of manpower. The pressure to meet international standards and practices would act as a catalyst for internal economic reforms, potentially more effectively than any purely domestic efforts. Moreover, diversifying trade relationships would help insulate Thailand from economic shocks associated with over-reliance on any single trade partner, particularly in the context of US-China tensions. There is also an opportunity to develop a sustainable local market through economic structuring driven by external pressures.

2. Political reform - strengthening political institutions

Reforming and fortifying political institutions is essential for stable and effective democratic governance. By enhancing the transparency, accountability, and efficiency of political bodies, Thailand can better resist external influences that may seek to exploit political weaknesses and negatively disrupt the country’s economy and society. Stronger institutions will be better able to form cohesive and strategic responses to external challenges, fostering greater public trust and confidence in the government. This stability is crucial for maintaining a resilient economy and ensuring that economic policies are implemented effectively and fairly. It is also important to set the long-term foreign policy/strategy/positioning with input from the private sector and other stakeholders.

3. Strengthen multilateral bodies - ASEAN engagement

Strengthening ASEAN as a multilateral body is crucial for collective bargaining in potential conflicts. In an environment where the US and China are vying for influence, a strong ASEAN centrality policy can lead to the bloc taking on a role as one of the last beacons of an economic reality that resembles the former normality. Thailand, as a key member of ASEAN, should advocate for stronger regional cooperation and integration. This includes supporting initiatives that enhance ASEAN's ability to address security, economic, and environmental challenges collectively. Thailand should also work closely with other regional bodies.

4. Economic diversification - Risk diversification

Reducing reliance on China or a few other economies by diversifying trade partners and supply chains is critical for Thailand's economic resilience. This strategy involves seeking new markets for Thai products, investing in emerging industries, and encouraging foreign direct investment from a broader range of countries. By developing trade relationships with countries such as India, Indonesia, and those in the European Union, Thailand can mitigate the risks associated with geopolitical tensions. Additionally, domestic diversification through fostering innovation and supporting small and medium-sized enterprises can create a more dynamic and flexible economy, one less susceptible to external shocks. Diversification efforts should also focus on sectors such as technology, renewable energy, and advanced manufacturing to ensure long-term sustainable growth.

Conclusion

The scenario paints a challenging picture for Thailand, highlighting the interconnectedness of geopolitical, economic, and environmental factors. The strategic responses proposed emphasize the need for comprehensive, forward-thinking policies that address immediate threats while ensuring long-term stability and growth. By focusing on economic reform, security policies, political stability, and environmental protection, Thailand can navigate these complex challenges and work towards a resilient and sustainable future.

Summary of scenario by Newin Sinsiri, Advisor, Geopolitics Team, Thailand Development Research Institute (TDRI).