Trump’s Trade War: Ways Forward for Malaysia?

US President Donald Trump has fired several tariff shots. Currently, the only one in effect is the 10% tax on China imports. ASEAN countries, including Malaysia, are well-positioned to capitalise any trade diversion. Tariffs have become central to Trump’s economic and political strategy which ultimately raise costs for Americans. 

According to the Peterson Institute for International Economics (PIIE), tariffs from the 2018-2019 US-China trade war were passed on to US purchasers, effectively acting as a tax hike on US households. According to the analysis, Trump’s proposed tariffs would offset his tax cuts plans as bottom 60% of households would face financial setbacks due to higher tariff costs outweighing tax relief. 

During Trump’s first term (2017-2021), ASEAN nations, notably Vietnam, benefited from the US-China trade war due to trade diversion; Vietnam’s exports to the US grew at a compound annual growth rate (CAGR) of 15.9%. Malaysia also saw notable gains (CAGR: 4.6%). With Trump’s new 10% tariff on Chinese imports, similar trade shifts could reemerge, creating opportunities for export-driven Asian economies. 

Industries that could benefit further include: toys, sporting goods (66.5% US import dependency on China), and cell phones and appliances (57.3%). As such, ASEAN countries are again well-positioned to capitalise on this shift. 

President Trump has signed a memorandum calling for “fair and reciprocal” tariffs, directing a country-by-country review; this is aimed at addressing perceived trade imbalances. The overall tariff gap between the US and Malaysia is estimated at 2.3%, indicating no substantial imbalances. Although reciprocal tariffs could generate revenue for the US, the impact is limited, contributing just 0.2% of US gross domestic product (GDP) and only 0.002% from Malaysia. (This is HLIB’s analysis and views) 

Given his unpredictable trade stance, the risk of a blanket 10% universal tariff is not entirely off the table.

The US China trade war in 2018-2020 led to a notable decline in Chinese exports, underscoring the role of trade elasticities in shaping trade flows. 

HLIB’s analysis suggests 0.7/2.0 for lower/upper bound elasticity to access the potential impact on GDP. Hypothetically they say, if Trump impose a 10% global tariff and we utilise a lower trade elasticity of 0.7 is used, Malaysia could see a decline of 0.5% of GDP with the impact potentially rising to 1.6% of GDP over time if trade elasticity strengthens.

Countries with even higher exposure to US trade such as Vietnam, Taiwan and Thailand would likely experience a more pronounced impact. While global trade tariff measures pose potential risks to Malaysia’s economic outlook, the country is well-positioned to withstand these challenges. 

As such, HLIB Research maintains 2025 GDP growth at 4.9% (2024: 5.1%) driven by strong domestic demand drivers, particularly resilient household spending and implementation of public and private investments. This is further reinforced by higher civil wage hikes, an increase in the minimum wage, expanded cash transfers (2025:RM13 bil; 2024: RM10 bil), a robust labour market (December 2024: 3.1%) and a steady pipeline of investments benefiting from government’s incentives packages. 

These factors may serve as key buffers against external headwinds, thus ensuring that Malaysia remains on a stable growth trajectory despite the evolving global trade landscape. 

Reference:

The art of emerging winners from Trump’s trade war: Ways forward for Malaysia, Felicia Ling and Nurul Athira Salith, Focus Malaysia, 17 February 2025