Donald Trump is Back!

With Donald Trump back, what is the impact on Malaysia? Countries, including Malaysia, are trying to anticipate the impact of protectionist and punitive measures under a second Trump administration.

The immediate worry is the impact of tariffs that will be imposed, with the most punitive ones on China. Malaysia and others will not be spared based on what has been said so far. The impact, however, may not be significant for Malaysia. Why?  Our trade surplus with the U.S. is small compared with other countries in the region. In South-East Asia, Vietnam and Thailand have far larger surpluses than Malaysia, while China is way ahead overall. 

Source: https://en.m.wikipedia.org

Malaysia stands out in its surplus in electrical and electronic (E&E) goods, an area of focus for the United States in terms of growing its domestic industry. As Malaysia plays an important role in the E&E supply chain ecosystem, there is little risk of the US targeting such exports.

Malaysia stands to gain from the China+1 policy being adopted by a growing number of companies. In the years following Trump’s first term, Chinese companies have been actively looking for offshore manufacturing bases to deflect the full brunt of US tariffs.

From 2016 to 2023, approved FDI rose from RM21.6bil to RM128.4bil, bolstered by the ongoing US-China trade war. The ongoing push by foreign investors to re-shore their production facilities augurs well for Malaysia, and FDI is envisaged to increase as a result of Trump’s economic policy.

Malaysia will gain from this primarily through the creation of jobs and an increase in its gross domestic product in the years to come as a result of increased domestic production and exports.

Global trade grew during Trump’s first term but at a slower rate. The tariffs he imposes will surely take some time to adjust to, but growth will slow in his second term. Also, will there be retaliatory tariff? The US economy will then be affected.

Trump’s planned tax cuts will certainly lift growth in the United States like it did during his first term. Despite Covid-19, the United States saw higher growth rates and a repeat of that will only increase demand for goods and services, which will help Malaysia’s trade.

As a result of Malaysia’s diversified exports, its reliance on China, may somewhat cushion the impact from higher tariffs.

One knee-jerk reaction from Trump’s election win is the fillip for the US dollar. A stronger greenback could mean pressure on Malaysia’s foreign reserves as in Trump’s first term, but conditions are different now. Back then, pressure from the 1MDB scandal dragged down the ringgit. The currency did rebound strongly on the back of increased investment, stable interest rates and anticipated fall in US interest rates. But the ringgit’s sensitivity to the yuan and any delay in the decline in the Fed Fund rate will impact its performance.

While lower oil and gas prices will hurt Malaysia, there is possibly a silver lining. Malaysia is projected to spend RM52.8bil this year on RON95 subsidies and lower crude oil prices will only lessen that burden. It will also enable the government to rationalise RON95 subsidies by a higher amount.

It is envisaged that the government may save RM8bil from the rationalisation plan that will see the top 15% of income earners not receiving any petrol subsidy. Lower crude oil prices can allow the government to consider a full float and cut subsidies entirely or have a more limited scheme than what has been planned.

Lower crude oil prices will also bring down broader inflation as prices in Malaysia are sensitive to transportation charges, which are predominantly linked to the price of petrol at the pump.

Malaysia will have to institute its own changes to improve productivity and efficiency based on what Trump does. Cost and price pressure on our exports to the US will give companies here the opportunity to make broad changes in the way they operate. By enhancing automation and productivity, firms here can only benefit themselves and the country in the long run.

So, is Trump policies good for us? Hopefully, the impact will be minimal and more rational thinking may prevail with his economic advisers.

Reference:

Boon or bane? Jagdev Singh Sidhu, The Star, 18 November 2024