US tariffs signal broader protectionist shift, spur rethink of Malaysia's trade strategy

Malaysian Reserve

22-04-2025

Heavy dependence on one or two key markets leaves Malaysia vulnerable to abrupt policy changes, economic shocks or geopolitical shifts
by GLORIA HARRY BEATTY
THE US' abrupt imposition of a 24% tariff on selected Malaysian goods — though now temporarily paused — has rattled policymakers and businesses, with economists warning of long-term implications for global trade and Malaysia's economic positioning.
While US President Donald Trump's administration has announced a 90-day deferment on the most punitive 'reciprocal tariffs', the 10% flat tariff remains in place, offering a narrow window for negotiations. For Malaysia, it is both a reprieve and a wake-up call.
Institute for Democracy and Economic Affairs Malaysia economist Doris Liew said it underscores the urgency for Malaysia to diversify its trade and export partnerships, not just to reduce its reliance on the US but also to rebalance its exposure to any single trading partner, including China.
'Heavy dependence on one or two key markets leaves the country vulnerable to abrupt policy changes, economic shocks or geopolitical shifts,' she said to The Malaysian Reserve (TMR).
Meanwhile, Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid expected American consumers would likely feel the sting.
'Since prices are likely to go up, consumers in the US might hold back on their spending. Already, the consumer confidence has been on a decline, reflecting uncertainties where the households would need to contend with higher import tariffs.
'Some of them might absorb, partially absorb or completely pass on the additional cost to the final consumers in the US,' he noted.
He added that rising operational costs could also hit US companies' competitiveness. 'It remains to be seen whether US companies operating abroad (will relocate) to the US to avoid tariffs. There are issues of scale, talent and supply chain readiness,' he said.
Heavy dependence on one or two key markets leaves the country vulnerable to abrupt policy changes, Liew says
Premature Escalation
On the other hand, Kuala Lumpur-based consulting firm Centre for Market Education CEO Dr Carmelo Ferlito described the situation as one of premature escalation. 'Tariffs have been imposed but paused, most businesses will stay in a wait-and-see mode,' he said, adding that history shows protectionism rarely ends well.
'Ultimately, the result of protectionism is just a smaller market for everybody. So, everybody is going to lose — particularly consumers,' he said.
Ferlito called for Malaysia to pursue more genuine free trade agreements (FTAs), saying a true FTA is made of two lines: 'You can sell to me with zero tariffs, I can sell to you with zero tariffs. The rest is just politics.'
Furthermore, the tariff saga is widely viewed as a front in the ongoing US-China trade rivalry, but with ripple effects across Southeast Asia.
'My sense is that many countries will search for friendly trading partners. This could mean renewed interest in frameworks like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP). Even the stalled Malaysia-European Union FTA (MEUFTA) is now moving forward,' Mohd Afzanizam said.
Ferlito said the real trade war remains between the US and China, with the former trying to force Southeast Asian nations to choose their alliances.
However, he believes that China will avoid direct retaliation against ASEAN where it will mainly act against the US and try to reinforce ties with Asean economies.
Malaysia's Next Move
Economists agree that Malaysia's current neutral stance is likely the most pragmatic option.
Mohd Afzanizam noted that it is very delicate and the choice is not binary.
'Malaysia must continue on a double-track path, staying diplomatic with both while also seeking out new partners,' he said.
He added that more FTAs and multilateral trade deals are key. 'Negotiations are the right thing to do. Tit-for-tat measures would only raise the cost of doing business for everyone,' he said.
Liew echoed the importance of collective action, saying leveraging ASEAN as a collective voice is strategically crucial.
She said regional coordination, whether through ASEAN or ASEAN+ dialogues, can greatly enhance bargaining power.
As tensions escalate, the focus now shifts to economic resilience and long-term hedging strategies.
Ferlito said Malaysia should explore at 360 degrees all options, starting from the EU.
'Certain changes don't happen overnight, but that's where we need to head,' he added. Liew warned that in an increasingly multipolar and fragmented trade landscape, smaller economies cannot afford complacency.
She said Malaysia's best course of action is to remain agile, strengthen its domestic economic fundamentals and deepen its trade ties far beyond its traditional partners.
This article first appeared in The Malaysian Reserve weekly print edition