Economists believe 10% baseline US tariffs will stay

The Star

14-05-2025

On the upside: Yeah said with the two of the world's largest economies temporarily scaling back on tariffs, Malaysia's growth outlook has somehow brightened considerably with growth expectations for this year seeing an upward adjustment. — LIM BENG TATT/The Star
PETALING JAYA: While Malaysia can take some comfort in the United States and China reaching a temporary ceasefire of sorts in the trade war by slashing sweeping tariffs on each other for 90 days, economists believe the 10% baseline US tariffs will stay.
This is despite negotiations with the United States and the implementation of reciprocal tariffs currently on ice.
Sunway University economics professor Dr Yeah Kim Leng said the tariff de-escalation and 90-day truce signalled a step-back from a full scale US-China tariff war.
'While uncertainty still lingers over the negotiations, it is highly unlikely that the situation will re-escalate, given that both sides are appraising the mutually destructive damage to their respective economies caused by the month-long stoppage of trade and disruptions to supply chains due to the triple-digit tariffs,' he said.
'Malaysia and other Asean countries can take comfort that their continuing negotiations with the United States will not be as tough or acrimonious compared to China as the main adversary.
'Nevertheless, we have to be prepared to accept the 10% baseline tariff and make some concessions to achieve a win-win outcome as long standing trade partners,' he added.
Yeah said with the two of the world's largest economies temporarily scaling back on tariffs, Malaysia's growth outlook has somehow brightened considerably with growth expectations for this year seeing an upward adjustment.
He also said it is likely that the gloom over the global economy and trade has been partially lifted.
'The ringgit has benefitted from the weakening of the US dollar triggered by the tariff war and the US Fed's rate cut expectations. Global risk aversion and shift away from dollar assets due to investors' concerns over the United States' high debt level and fiscal vulnerabilities have also contributed to dollar weaknesses,' he said.
Besides under-valuation, Malaysia's diversified economy, low inflation, continuing Foreign Direct Investment inflows and resilient banking and financial systems have lent support to the ringgit appreciation, he added.
On the revised Growth Domestic Product (GDP) growth forecast, Yeah said it is expected to be at about 4.5% instead of being slashed closer to the 4% mark.
Investment, Trade and Industry Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz said Malaysia would likely miss its GDP growth forecast target amid the current economic uncertainties. The GDP growth projection for 2025 was initially between 4.5 and 5.5%.
Kenanga Research said in a note that the 10% tariff 'baseline' and 30% on China was still in play, and thus the situation has only partially de-escalated.
'Deals also take time to iron out but this being a joint statement, with mechanisms being established for further talks, render this a welcome development and could help improve risk-taking appetite.
'Most of this region have seen share prices recovering to levels prior to the reciprocal tariff,' it added.
'Likewise for FBM KLCI, which is somewhat a laggard despite ringgit strength. We watch for risk appetite rotating out of lower-beta/defensive sectors. As global economic stress gets a relief, banks which have been a laggard group since reciprocal tariffs (still down 3%), could come back into focus,' it added.
Geopolitical analyst Dr Azmi Hassan commented that the 90-day pause would serve as a crucial window for both nations to negotiate and resolve outstanding issues.
'Both the United States and China have incurred significant costs from the ongoing trade war. It's unlikely that tariff rates will return to the previous triple-digit levels.
'However, I expect certain categories of goods, whether exported from China to the United States or vice versa, will continue to face specific tariff measures,' he said.
Commenting on the potential implications for Malaysia, Azmi said select local industries such as glove manufacturing were expected to maintain their competitive edge amid the shifting trade landscape.
'The outcome will also hinge on the negotiations led by Malaysia's chief negotiator in the upcoming formal tariff discussions with the United States,' he added.