By Mohd Khairul Ramli
The resurgence of protectionism under the recent “America First” trade policy has unveiled a defining moment in global trade dynamics, with repercussions reverberating across nations far beyond the United States. At its core, this policy is an overt attempt to rebalance America’s trade deficits profitability which could have severe ramifications for global supply chains, particularly in ASEAN economies like Malaysia. However, the recent announcements from Washington, including new tariffs targeting China, Mexico, and most recently, the European Union (EU),1 portend a destabilizing chapter for global commerce. Ironically, the long-term effects might ultimately harm American industries as much as they do its trading partners, rather than rejuvenating the U.S. economy.
Trumponomics Finesse
Central to the “America First” policy are targeted tariffs on countries deemed to engage in “unfair trade practices” aimed at protecting American industries and jobs. China, Mexico, and Canada remain primary targets, including Malaysia’s on this growing “hit list”.2 For Malaysia, such measures could disrupt export-oriented industries in which Malaysia deeply integrated into global supply chains. With electronics, machinery, oils & gas and palm oil comprising a significant portion of Malaysia’s exports, the unwelcome tariffs threaten to erode competitiveness and dampen trade volume.
However, the reality is far more complex. Tariffs on Chinese goods, for instance, have not only failed to significantly reduce the U.S. trade deficit but have also led to higher costs for American consumers.3 Theoretically, when prices rise due to tariffs, exporters might attempt to lower their prices, or importers might absorb the increased costs. However, most businesses will simply pass on the increased cost of tariffs onto consumers, who ultimately bear the brunt of the price hikes on both intermediate goods and finished products. This not only erodes household purchasing power but also undercuts the competitiveness of U.S. businesses, which now face higher input costs in an already volatile global market.
Trump’s flawed understanding of trade is a dangerous cocktail of economic ignorance and misplaced nationalism. His obsession on positive balance of trade alone was the key and the U.S. trade deficit as an inherent evil ignores the basic reality that trade imbalances reflect consumer choice, not systemic failure or foreign exploitation. Americans willingly purchase imported goods because they offer value, not because the system is “rigged” against them.
Yet, Trump cheered on by a circle of sycophants who fuel his economic delusions in the name of “America First” that pushes a tariff policy that punishes U.S. importers rather than foreign exporters. His failure to grasp that tariffs are taxes on American businesses and consumers, not a weapon against exporting nations, exemplifies the reckless populism that threatens both the U.S. economy and global stability.
The Disruptive Mechanism
The impact on Malaysia, however, is not merely a matter of disrupted supply chains. The broader economic implications are profound. Malaysia’s economy is heavily reliant on trade, with exports accounting for a significant portion of its GDP. The U.S.
is one of Malaysia’s largest trading partners, and any disruption to this relationship could have serious consequences for the Malaysian economy, potentially reducing demand for exports and jeopardizing thousands of jobs in Malaysia’s manufacturing and agricultural sectors.
The “America First” policy’s also insistence on examining the efficacy of existing trade agreements further amplifies uncertainty.4 Malaysia’s reliance on multilateral and regional trade agreements, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), faces renewed scrutiny under the U.S.’s aggressive posture. Should the U.S. renegotiate or undermine such agreements, Malaysia’s access to key export markets might be at risk.
A recent report on trade policy underscores the dangers of U.S. protectionism, warning that the uncertainty it creates could stifle investment and hamper economic growth across the region. By weaponizing tariffs and pushing for decoupling, Trump’s administration undermines the very stability that fosters economic expansion.5 For Malaysia, this could mean reduced export revenues, lower foreign direct investment, and slower GDP growth. Moreover, the ripple effects of these policies could extend beyond trade, affecting Malaysia’s currency, stock market, and overall economic stability.
Navigating The Storm
In light of these challenges, it is imperative for Malaysian businesses to adopt a proactive approach to mitigate the risks posed by Trump’s trade policies. One key strategy is to assess the potential consequences of U.S. tariff adjustments on their operations. This involves analysing the impact of proposed changes to U.S. tariffs on their supply chains, pricing strategies, and overall competitiveness. By monitoring developments in real-time and staying abreast of updates on the trade policy review, businesses can better anticipate and respond to changes in the trade environment.
Additionally, businesses should explore options to minimize the impact of tariffs, such as leveraging duty drawback programs, utilizing free trade agreements, and adopting first-sale-for-export strategies.6 These measures can help reduce the financial burden of tariffs and maintain the competitiveness of Malaysian exports in the U.S. market.
Another critical strategy is to identify effective approaches to mitigate the impact of tariff changes, tailored to Malaysia’s specific supply chain and operational needs. This may involve diversifying export markets to reduce reliance on the U.S., reconfiguring supply chains to minimize exposure to tariffs, and enhancing operational efficiency to offset increased costs. For instance, businesses could explore opportunities to expand trade with other ASEAN countries, China, or the European Union, thereby reducing their dependence on the U.S.
Data Tools Transform Trade
The wider implications of tariff adjustments also present opportunities for Malaysian businesses to innovate and adapt. For example, the use of advanced data analytics can provide valuable insights into trade flows, optimize product classification, and ensure compliance with trade regulations. By leveraging digital tools and platforms, businesses can enhance their data and analytics capabilities, enabling them to make more informed decisions and respond more effectively to changes in the trade environment.
The advanced analytics also can help businesses identify new market opportunities, optimize their pricing strategies, and improve their overall competitiveness. In this way, the challenges posed by Trump’s trade policies can serve as a catalyst for innovation and transformation within Malaysian businesses.
Moving Forward
However, while these strategies can help mitigate the impact of U.S. trade policies, they do not address the broader systemic risks posed by Trump’s protectionist agenda. The “America First” policy is not just a threat to individual businesses or economies; it is a threat to the global economic order. By undermining the rules-based international
trading system, Trump’s policies risk triggering a cycle of retaliation and counter- retaliation that could destabilize the global economy.
This is particularly concerning for Malaysia and other ASEAN countries, which have benefited immensely from the open and rules-based trading system that has underpinned global economic growth for decades. The erosion of this system could have far-reaching consequences, not just for trade but for global economic stability and security.
In conclusion, Trump’s “America First” trade policy could represent a significant threat to the Malaysian economy and the broader global economic order. Although the global tendency towards free trade is unlikely to end anytime soon, it is imperative for Malaysia and other ASEAN to adopt a proactive and strategic approach to safeguard their economic interests. At the same time, the international community must work together to uphold the rules-based trading system that has been the foundation of global economic prosperity. Failure to do so could result in a global economic setback that would harm not just Malaysia or ASEAN, but the entire world.