On Monday 5th of May, I will be back in Parliament for a special one-day session to debate the impact of the Trump Tariffs on Malaysia and the world. As chairman of the Parliamentary Special Select Committee on International Relations and International Trade, I will be delivering a speech on the day. As I write this article, I am also working on my speech thus helping me to organise my thoughts.
The motivations for pursuing this unprecedented trade policy are many and include the following; (a) to slow down US consumer spending redirecting this to a culture of investing, (b) to raise money from import tax to cover US fiscal holes (as part of the DOGE program), (c) to encourage American multinational companies to return to onshoring, and (d) to slow down China’s economic growth and threat as a rising superpower.
Trump supporters say that this aggressive tariff policy is a great negotiation tool to strong arm all other countries to give America more economic concessions and at the same time create an intended consequence, which is to compel every nation to face an onslaught of China goods dumped into their respective markets.
However, the immediate reaction of the global stock markets has been less than receptive, falling and rising with extreme volatility over the past month. Traders and insiders are making a killing in this period of short-term volatility, at the expense of everyone else from producers to consumers in the longer term. At the commercial and business level, anticipated inflation has already started and orders for future goods have stopped due to lack of policy clarity. The 90 days pause in global trade with the US, is stressing banks, industries, logistics and energy companies. All economies are revising and bracing for lower growth projections. At the political level, many people are bewildered and this confusion if allowed to fester and result in an economic recession, could turn into political anger in most affected trading nations.
More importantly, is the damage to the intangible but essential elements of trust, reliability and certainty that powers global trade. For many decades since the end of World War Two, the US has led the world, earning it substantial goodwill from policies of free trade and globalisation. Most importantly the US provided a sense of stability in its currency being the global clearing and reserve currency. The US dollar has clearly suffered but remains the last poker card of this dangerous global game of bluff. All these goodwill have been eroded and erased by Trump in a matter of weeks, starting with his quarrels with China, Canada, Mexico and the European nations, and expanding the same now to the rest of the trading world. These quarrels are now turning US good wills into ill wills of Trump, being unreliable, unpredictable and a bully, from both allies and neutral countries.
How should Malaysia handle this crisis? First and foremost, we need to be neutral and tactful as a trading nation. We need to understand the US motivations; we may not agree with their approach, but we need to understand them in order to anticipate their next moves. The US is our biggest tech investor and we are deeply integrated into the US supply chains, so we have no choice but to engage tactfully. We should also aggressively follow up with any outstanding trade matters prior to the Trump administration taking office. We need to beef up enforcement issues regarding AI diffusion and commit to stop any bad trade practices; this will require political will to fight loopholes and corruption.
On the flip side, we also need to understand China, and anticipate their next moves against the US. China is our biggest trading partner. We must empathise their position and where possible, we must explore larger and balanced trade with China. There may also be prospects of FDIs from China but before that, we need to negotiate and ensure that the US will adhere to trade rules such as Rules of Origin, Local Content Requirements and not conflate other issues such as ownerships.
Due to our unique position of receiving high grade US investments and very strong trade with China, I sincerely see a role for Malaysia as a potential honest broker for both sides.
When Trump announced the tariffs on 2nd April 2025 Malaysia got hit with 24% tariffs, which is relatively high but lower than most of our neighbours, save for Singapore (10%) and the Philippines (17%). The impact of such differential tariffs imposed is to destabilise the market equilibrium. Some countries punished heavier are our competitive neighbours; Indonesia (32%), Thailand (36%) and Vietnam (46%).
Instinctively, these countries will now compete to race to the bottom to negotiate for lower tariffs including Malaysia. As chair of ASEAN, we have a duty to lead ASEAN to face this challenge and where possible present a more united front. A flexible solution is having a common ASEAN stance on the Trump tariffs, share strategies and share results on common goods and services but allow each to negotiate their own unique goods and services.
Going forward, Malaysia must diversify trades to many countries as possible and where possible, conclude more FTAs. We need to beef up negotiation skills and have a very clear economic direction for the future. Clarity of economic vision will then allow us to pursue and choose the trades we want and need. The economic vision I see, for the coming decades is a transition from oil and gas and palm oil dependency into renewable energy, biomass, carbon credits and of green tech industries based on rare earth and critical minerals. We must continue to constantly upgrade our capacity as a good and reliable host to the best global companies, and in particular those in the AI sector, so that we may keep a front seat and access to these super transformative inventions.
This tariffs episode, uncalled and imposed upon the rest of the world, is a test of our own resilience and skills. We must then take this challenge as an opportunity to reform, to reduce our national debt, trim wastages and eliminate corruption, and also have a long hard look on subsidies. Failure to improve on all these fronts quickly will mean that when the next crisis hits us, and with Trump, anything can and will happen, we will then be forced to compromise again our sovereign interests and even open Malaysia to future bullying.
