
Malaysia's competitive edge intact amid modest US tariff gap
This may inadvertently embolden him and his confidence to take action could stem from several recent 'wins' such as the USD100 bil in tariffs collected with minimal economic drag, resilient US equities, along with his role in Israel-Iran tension.
'Currently, Malaysia's 25% US tariff rate is higher vs Indonesia (19%) and Vietnam (20%) has raised concerns, but the gap is modest and we believe is unlikely to deter foreign investments meaningfully,' said Hong Leong Investment Bank.
Even if tariffs remain elevated, policy tools like tax incentives can cushion the impact, in our view.
On a similar vein, Malaysia's high corporate tax rate of 24% vs Indonesia/Vietnam's 22%/20% has not historically hindered investments, backed by a strong manufacturing base and supply chain.
We see these structural strengths will continue to make Malaysia an attractive destination under the global supply chain diversification or '+N' strategy.
In any case, we remain optimistic Malaysia can still negotiate for a lower tariff rate.
Locally, there is growing concern that Malaysia may be unable to secure a more favourable US tariff rate relative to regional peers, potentially undermining our national competitiveness.
Although this risk warrants monitoring, we are not overly alarmed. The differential of 5-6ppt is modest and, in our opinion, unlikely to be material enough to meaningfully divert foreign investment away from our country.
Earlier, the narrative of Malaysia benefiting from tariff arbitrage held stronger weight due to a significantly wider gap of 8-22ppt during April's Liberation Day episode.
In contrast, the current disparity is far narrower. Even if Malaysia ends up with a relatively higher tariff rate, we believe it can be mitigated via strategic policy tools, including targeted tax incentives and capital allowances.
On a similar vein, while Malaysia's corporate tax rate stands at a higher 24% vs Indonesia/Vietnam's 22%/20%, it has not historically undermined our competitiveness in luring foreign investments.
This is thanks to our mature and integrated manufacturing ecosystem, supported by a well-developed local supply chain.
Thus, we believe these structural strengths will continue to make Malaysia an attractive destination under the global supply chain diversification or '+N' strategy.
Moreover, it is worth noting that any prospective tariff action by Trump would only affect Malaysia's exports to the US.
Like many other nations, the government is actively working to diversify our export base and trade partners to mitigate potential shocks.
In any case, we remain optimistic that Malaysia could still negotiate a more palatable tariff rate (<20%), especially seeing both Indonesia and Vietnam had successfully secured steep reductions (13-26ppt) despite their respective ties to BRICS and China.
The upcoming 13th Malaysia Plan (13MP), which runs from 2026-30, is slated for tabling in Parliament at end-July.
We see a higher Development Expenditure (DE) allocation of RM440 bil, in line with the RM90 bil/year pace from 2023-25 and continuing the upward trajectory seen in past plans.
That said, the DE will be anchored by fiscal prudence to ensure adherence to the government's fiscal deficit target of 3.5% GDP between 2025-27.
Overall, we anticipate the 13MP to adopt a globalist approach, particularly given the significant overlap with Trump's presidency through 2028. —July 22, 2025
Main image: LITE

Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles


The Star
15 minutes ago
- The Star
EU chief to meet Trump for trade talks
BRUSSELS, July 25 (Xinhua) -- European Commission President Ursula von der Leyen said on Friday that she will meet U.S. President Donald Trump on Sunday to discuss transatlantic trade. Von der Leyen said in a post on social media platform X that the two leaders had a "good call" and agreed to meet in Scotland to "discuss transatlantic trade relations, and how we can keep them strong." Trump told reporters before departing for Scotland that "I would say that we have a 50-50 chance, maybe less than that, but a 50-50 chance of making a deal with the EU." The president is on a five-day visit, during which he is expected to visit two of his golf resorts and meet British Prime Minister Keir Starmer. Earlier this month, Trump threatened to impose 30 percent tariffs on European Union (EU) goods starting Aug. 1, prompting Brussels to accelerate trade talks. Should talks fail, EU member states have backed a retaliatory tariff package on around 93 billion euros (109 billion U.S. dollars) worth of U.S. imports, due to kick in on Aug. 7. (1 euro = 1.17 dollar)


The Star
4 hours ago
- The Star
EU, US could reach framework trade deal this weekend, EU officials say
FILE PHOTO: U.S. and European Union flags and a "tariffs" label are seen in this illustration taken April 10, 2025. REUTERS/Dado Ruvic/Illustration/File Photo BRUSSELS (Reuters) -The European Union and the United States could reach a framework deal on trade this weekend, ending months of uncertainty for European industry, EU officials and diplomats said on Friday. The deal would likely include a 15% baseline tariff on all EU goods entering the United States and probably a 50% tariff on European steel and aluminium, the officials and diplomats said. U.S. President Donald Trump on Friday said there was a 50-50 chance or perhaps less that the United States would reach a trade agreement with the European Union, adding that Brussels wanted to "make a deal very badly". One of the sources said a weekend deal seemed likely as the "agreement is basically in the hands of Trump now." A source familiar with the negotiations said there was a "good chance" European Commission President Ursula von der Leyen would meet Trump in Scotland over the weekend. A spokesperson for the Commission did not respond to multiple requests for comment on a possible meeting. Trump will visit his golf course on Scotland's west coast and is set to meet British Prime Minister Keir Starmer on Monday. Combining goods, services and investment, the EU and the United States are each other's largest trading partners by far. The American Chamber of Commerce to the EU warned in March that any conflict jeopardised $9.5 trillion of business in the world's most important commercial relationship. The EU is facing U.S. tariffs on more than 70% of its exports - 50% on steel and aluminium, 25% on cars and car parts and a 10% levy on most other EU goods, which U.S. President Donald Trump has said he would hike to 30% on August 1, a level EU officials said would wipe out whole chunks of transatlantic commerce. Further tariffs on copper and pharmaceuticals are looming. The EU has prepared countermeasures that could enter into force on August 7 in the event that talks collapse. (Reporting by Julia Payne and Jan Strupczewski; Editing by David Holmes)


The Star
7 hours ago
- The Star
Healthy outlook seen for healthcare industry
PETALING JAYA: Analysts are positive on the Malaysian healthcare sector, driven by its resilient long-term structural growth drivers, positioning it as a compelling defensive play amid ongoing macroeconomic uncertainty. Hong Leong Investment Bank (HLIB) Research has maintained its 'overweight' stance on the healthcare sector for 2025, with a clear preference for the hospital segment. 'Also, we see further upside from a domestic-focused thematic play from an initial public offering-led re-rating, driven by the anticipated listings of Sunway Healthcare Group, expected in late-2025 or early-2026,' it said. The research house has kept its 'buy' rating on IHH Healthcare Bhd , with a higher sum-of-parts-derived target price of RM9.15 from RM9.06. 'The marginal upward revision reflects the latest market capitalisations of its India-listed Fortis Healthcare and Singapore-listed Parkway Life Real Estate Investment Trust, which have seen slight valuation uplifts. HLIB Research has also upgraded KPJ Healthcare Bhd to a 'buy' from 'hold' with an unchanged target price of RM2.96, driven by the recent share price weakness that has improved its risk-reward profile. It has, however, maintained its 'hold' rating on UMediC Group Bhd , but lowered its target price to 31.5 sen from 40 sen. This is based on a reduced target price over an earnings multiple of 15 times applied to its 2026 earnings per share estimate of 2.1 sen. 'The downward adjustment in valuation multiple reflects waning investor interest, following three consecutive quarters of earnings underperformance, and a muted outlook in the fourth quarter of 2025. 'Until earnings visibility improves, we expect sentiment to remain subdued,' it explained. Meanwhile, MBSB Research, which has maintained a positive outlook on the healthcare sector, said the pharmaceutical market is fundamentally driven by robust demographic trends, which naturally increases the demand for healthcare services and medicines. 'The growing prevalence of non-communicable diseases such as cancer, diabetes and cardiovascular conditions, which require long-term medication and fuel sustained pharmaceutical consumption, is expected to continue to support all levels of the healthcare sector. 'Hence, we believe the growth in the pharmaceutical market will continue to grow in tandem with the expansion of investments in healthcare infrastructure (assets, accessibility and affordability),' it added. It pointed out that while direct pharmaceutical exports from Malaysia to the United States might face immediate headwinds from tariffs, the broader impact on the healthcare sub-sector could come from indirect effects on global pharmaceutical supply chains and procurement costs. 'This would affect the affordability and availability of medicines within Malaysia for all citizens and healthcare providers. 'The Malaysian government and industry players are already responding by prioritising supply chain diversification and exploring domestic production enhancements to mitigate these risks,' the research house said. It believes a multi-pronged approach involving government action, industry adaptation and consumer awareness will be crucial. HLIB Research, meanwhile, viewed the government's recent decision to implement the diagnosis-related group payment system, specifically for the upcoming 'basic health insurance and takaful products'. It said the targeted approach helps to improve accessibility for those priced out of existing insurance/takaful plans, while preserving the commercial viability of the private healthcare sector.