Malaysia's competitive edge intact

The Star

2 days ago

PETALING JAYA: Malaysia's 19% tariff on exports to the United States, reduced from 25% previously, still gives it a competitive edge over neighbouring Asean countries in attracting foreign direct investment.
While many had hoped for a greater reduction in the tariff, industry experts still see it as a 'win' for Malaysia.
United Overseas Bank (UOB) senior economist Julia Goh said: 'For us, it's good news going from 25% to 19% and hopefully provides some clarity for businesses.
'We are on par with other Asean neighbours, which will help to sustain our competitive advantage in the region,' she told StarBiz.
Following months of intense negotiations that rattled the region's export-reliant economies, US President Donald Trump announced the revised rate in an executive order last Friday.
Among Asean member countries, Laos and Myanmar face the highest tariff rate at 40%, followed by Brunei (25%) and Vietnam (20%), while Malaysia, Cambodia, the Philippines, Thailand and Indonesia are each subject to 19%. Singapore has a base tariff of 10% with no reciprocal tariff.
Williams Business Consultancy Sdn Bhd founder and economist Geoffrey Williams said the tariff reduction will be 'pitched as a victory.'
'Overall, it is just a marginally better position but still hits Malaysian exports hard. If it causes just a 10% reduction in exports to the United States, it will cost RM20bil. This (equates to) RM670 for every Malaysian and is the cost of protecting Malaysian markets with non-tariff barriers and bumiputra preference schemes.'
Williams said there is a need to understand what concessions the United States demanded and what Malaysia refused.
'Trump has signalled that tariff negotiations can continue in future, so this must be the focus.'
Williams added that business groups will call for government support, however, this will only increase costs to the government, which will redirect subsidy savings to business bailouts.
'This would be politically damaging and economically unjustified. Businesses have to bite the bullet and accept that the trade negotiators have not succeeded.
'To mitigate the impact, they have to change their business models, become more competitive, and work with their supply-chain partners to keep prices to end buyers as low as possible.'
Meanwhile, Federation of Malaysian Manufacturing (FMM) president Tan Sri Soh Thian Lai views the tariff reduction as a timely and strategic move, particularly in the current global trade environment.
'Although the six-percentage point reduction may seem modest, it is significant for industry players, especially for sectors operating on thin margins or those competing in price-sensitive global supply chains.'
Soh believes the reduction enhances the cost competitiveness of Malaysian-manufactured goods in the US market.
'While some may argue that the impact on Malaysian exporters could be limited because US importers bear the tariff cost, FMM believes that the burden of tariffs is often shared across the supply chain.
'It is expected to support export growth, improve market access and further strengthen the longstanding economic ties between both countries.
'While it is still early to assess the full extent of the impact, FMM anticipates that several export-oriented industries, including electrical and electronics, machinery and equipment, rubber-based products and processed industrial goods, may benefit from improved competitiveness and increased demand.'
Soh added that any changes in export volumes in the short term may be gradual.
'While some frontloading of orders may have occurred earlier, the tariff cut is likely to encourage more exporters to consider taking on new orders going forward.
'Manufacturers are mindful of the current volatility in global markets, including ongoing supply chain disruptions, and are expected to factor these considerations into their planning and responses to future shifts in demand.'
Going forward, UOB's Goh maintains a cautious outlook for Malaysia's external trade prospects.
She noted that Trump's previous threats to impose additional tariffs on Brics member countries and secondary sanctions on countries trading with Russia remain key watchpoints.
Following the tariff revision announcement, the Investment, Trade and Industry Ministry (Miti) said that it has been working closely with agencies like Bank Negara to assess and find ways to mitigate the impact of tariffs on Malaysia's exports. This include continuing to support companies, especially small and medium enterprises, in adjusting to the new 'baseline' rate.
Miti also said it will encourage exporters to make full use of Malaysia's 18 free trade agreements to diversify and expand their export markets.
Its industrial reform programmes will help companies transform their operations by enhancing efficiency, embracing automation, and boosting productivity.
Meanwhile, UOB Kay Hian (UOBKH) Research in a report said the 19% tariff revision aligns with its base-case view and represents a 'least-worst' scenario.
'Previously, the proposed 25% tariff had placed Malaysia at a relative disadvantage versus regional peers such as Vietnam, Indonesia and the Philippines, all of which carried tariffs at least five percentage points lower.
'This disparity had triggered significant risk aversion toward Malaysian exporters.'
While a 19% tariff still appears elevated on paper, UOBKH Research said it effectively re-levels the playing field.
'We believe Malaysia remains competitively positioned within the US+1, China+1 and Vietnam+1 supply chain frameworks, supported by a diversified tech ecosystem, entrenched industrial base, strong multinational company presence and proactive policy support.'