US tariff cut to 19 per cent still poses short-term economic risk for Malaysia

Sinar Daily

6 days ago

KUALA LUMPUR - The United States' (US) decision to reduce tariff on Malaysian exports to 19 pr cent from 25 per cent signals a willingness to negotiate, but the revised tariff is still expected to have significant economic repercussions for Malaysia in the short- and long-term, said an economist.
UOB Kay Hian Wealth Advisors Sdn Bhd investment research head Mohd Sedek Jantan told Bernama that trade tariffs typically exert measurable effects on gross domestic product (GDP) and fiscal balances 12 to 15 months after implementation.
However, he added that the extent of the impact depends heavily on government and corporations' respond. In Malaysia's case, he believes the repercussions may be cushioned, given the proactive and strategic policy direction outlined under the 13th Malaysia Plan (13MP).
He said the 13MP, unveiled by Prime Minister Datuk Seri Anwar Ibrahim on Thursday, provides a comprehensive framework to mitigate geo-economic risks, particularly those related to trade fragmentation, global supply chain realignments and technological shifts.
"Investor sentiment has also responded with relative composure. The 19 per cent tariff, lower than initially feared, has helped stabilise markets.
"Hence, we anticipate foreign investors may return as net buyers in the Malaysian capital market as soon as this week," said Mohd Sedek.
He has, therefore, maintained that the FBM KLCI will remain on track to meet end-2025 target of 1,650 points, supported by sector rotation, policy clarity and regional positioning.
In the short term, the economist said the tariff will raise the cost of Malaysian exports for non-exempted goods such as furniture, rubber products, palm oil derivatives and machines.
These sectors collectively represent about 40 per cent of Malaysia's US exports of US$26 billion, equivalent to over 11 per cent of total exports.
"Adjustments in demand elasticity could reduce profit margins by between 10 and 30 per cent, with potential annual export losses estimated at US$2 billion.
"This is likely to place immediate pressure on key sectors such as furniture, where nearly 20 per cent of output is US-bound. In tandem, short-term volatility in the equity market can be expected as investors reassess risk and earnings outlooks," he said.
Nevertheless, Malaysia's competitive position may be partially cushioned by the exemption of semiconductor exports, which account for 7.9 per cent of total exports, and by the relatively lower tariff rate versus China's 34 per cent and Vietnam's 20 per cent.
"This advantage could facilitate trade diversion as US importers seek to avoid higher-cost suppliers, potentially redirecting trade flows in Malaysia's favour.
"In this context, there is room for cautious optimism that the government already has in place contingency plans to mitigate the tariff shock and prevent it from transmitting into broader trade or economic disruption," he said.
Ultimately, Malaysia's long-term trajectory will depend on the effective implementation of the 13th Malaysia Plan reforms.
If executed with consistency, Malaysia stands to emerge as a more resilient and regionally significant economy within ASEAN.
Nonetheless, continued global trade tensions and geopolitical uncertainties could cap potential growth, with real GDP expansion likely to settle below the 5.0 per cent threshold in the medium term.
Meanwhile, Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the negative impact on Malaysia's economy is expected to be slightly mitigated.
In this regard, Bank Negara Malaysia (BNM) has revised its GDP forecast for 2025 to a range of 4.0-4.8 per cent, down from the earlier 4.5-5.5 per cent projection.
Meanwhile, the 13MP projects economic growth for 2026 to 2030 at around 4.5-5.5 per cent, a range deemed appropriate given the evolving global economic climate.
"Therefore, it is crucial to preserve strong bilateral ties with the US, while simultaneously exploring new opportunities with countries in Europe, the BRICS bloc and strengthening economic and diplomatic cooperation within ASEAN," he said.
Simultaneously, Mohd Afzanizam said efforts to boost productivity, build capacity and enhance economic resilience must be intensified to safeguard Malaysia's economic sovereignty.
These measures will reinforce investor and business confidence, underpinned by pragmatic policies and the government's proactive response to emerging challenges, he said.
"Nonetheless, the 19 per cent import tariff is expected to impact American consumers' purchasing power.
"This may, in turn, dampen economic momentum in the US, the world's largest economy, which poses a potential risk to global economic growth in the coming years," he said. - BERNAMA