Andy Hall said the downgrade was necessary to force Thai businesses and officials, as well as international buyers of Thai goods, to put effective measures in place to address trafficking in persons, particularly forced labour.
"Tier 3 status for Thailand (in the US report) is called for as acknowledgement of the severity of the human trafficking situation here and failure of successive administrations to address the breakdown in rule of law and migration policy that have led to this poor situation," said Mr Hall.
Thailand needs to fight hard, not just on the PR front, to regain international confidence in its labour-intensive export industries including seafood, fruit and vegetables, poultry and rubber, as well as on the tourism front, said the British activist.
The country has to show its ability and willingness to guarantee protection for workers in all parts of its supply chain, he added.
Mr Hall is currently fighting four civil and criminal defamation charges laid by a local pineapple processor accused of exploiting Myanmar migrants in a report that he produced.
The United States on Friday downgraded Thailand, Malaysia and Venezuela to Tier 3, which groups the world's worst centres for human trafficking, such as North Korea and Syria.
While Thai Foreign Ministry officials and diplomats have voiced their disappointment, a business leader said the economic and business consequences of the downgrade might not be as severe as some believe.
The direct impact might not be obvious except that certain products may not receive import tariff reductions under the US Generalised System of Preferences (GSP), said Pornsil Patcharintanakul, a vice-president of the Board of Trade.
Shrimp and prawns, products containing fish meat and prepared meals lost their GSP status some years ago, but some other products that are still eligible for GSP might be removed from the list, said Mr Pornsil.
He said the key impact was on the image of the country, which would affect the decisions of buyers, both importers and end-consumers, to purchase Thai products, particularly in Europe.