Please Wean Off Protectionism!

 

For the past four decades, Malaysians have had to pay high prices because of huge import fees on automobiles to allow the national auto players to grow. The problem is after more than 40 years, Malaysians are still paying a substantial amount of fees to protect the car companies. When will that change? That is pertinent as the two largest expenses for the average Malaysian are the house they are living in and also the car they own. 

The national auto industry had its foundation on the Look East Policy. The industry did not follow the eventual path laid out by Japan, which started off having high protectionist barrier but those were dismantled over time. Japan, South Korea and China, which have established auto industries benefited from tariffs and non-tariff barriers to help the domestic industries grow, but these levies were removed in more recent times, especially in Japan and South Korea. 

Source: https://www.investopedia.com

Miti says national automakers, Proton-Geely and Perodua-Daihatsu, account for over 63% of local vehicle sales and there are more than 700,000 employees in the ecosystem. All together, the industry contributes about 4% of the country’s gross domestic product (GDP) annually. After decades of investment, the statement says Perodua-Daihatsu maintains a localisation rate of over 75% on its mainstream models and Proton-Geely at 76% in 2025. 

Miti says the auto industry has developed new technologies through its localisation programme, which is the aim of the national car programme, and billions of ringgit had been chanelled through the vendor programme for the benefit of the small and medium enterprises and their employees. There is no doubt that there have been benefits as the national auto industry was a prelude towards the industrialisation of Malaysia. Boosting engineering levels was also an intent of the policy. But after decades, Malaysia’s commitment to research and development as a percentage of GDP is meagre. 

FDI as a means to drive the auto industry was executed by Thailand, which now sees its auto industry not only claim the moniker of Detroit of the East but also contributes about 10% of GDP and employs more people than the ecosystem in Malaysia. Indonesia, which once tried to have its own national car project but went the way of Thailand, has its auto industry ecosystem account for between 8% and 10% of GDP. But the Thailand auto industry model also led to a large share of exports as opposed to Malaysia. Thailand exported US$24bil worth of vehicles in 2024 compared with US$481mil in Malaysia. Indonesia exported US$6.23bil worth of vehicles in 2024. 

The government is to collect about RM11.6bil in auto-related taxes in 2026 which pales in comparison with the contribution the auto sector has on GDP. Malaysia’s auto sales are dependent on the local market because of the low level of exports. At around 800,000 vehicles per year, Malaysia’s auto sales are not small but they do not offer scale to drop the unit cost against countries with larger exports or heavy subsidies are allowed to achieve. 

But that does not mean protectionist policies must continue. The welfare loss from high taxes to protect the domestic industry can be large, but policy has to be tweaked to incorporate some withdrawal of protection for the benefit of consumers. For one, Malaysian manufacturers have to increase their exports significantly if there is to be a continuation of protectionist policies. That way, forcing companies to be more competitive will only mean longer term survival in a more open market place akin to Japan and South Korea.  

Forty years of protectionism is enough! If a child remains a child at 40, the fault lies with the parents not the child. And parents should know when to let go. Why can’t the Government over a period let go these two kids – Proton and Perodua – and face market forces? 

Reference:

Time to wean off protectionism, Jagdev Singh Sidhu, The Star, 4 Apr 2026