MONEY THOUGHTS: Of squeezes and substitutions

New Straits Times

2 days ago

CAN you sense the snowballing righteous indignation of regular people at the arrogance and disrespect shown to them by political leaders — far and near? Globally, Donald Trump's tariffs on the whole world have angered entire continents, even as some cautious national leaders are taking a placatory stance toward him.
Note: Even disregarding trade volumes for the moment, the sizable dip in the number of foreign students enrolling in American universities, and the cratering of tourist visits Stateside both bear testimony to one unsurprising truth:
If you don't want me, I have options!
While not true under monopolistic or monopsonistic circumstances, it is true most of the time. (In a monopoly, there is only one seller or provider of a good or service; so, a monopolistic vendor can raise prices to the roof. Conversely, in a monopsony, there is only one buyer, again, of a good or service; therefore, a monopsonistic buyer can — and almost always will — slam prices to the floor on a take-it-or-leave-it basis.)
Thankfully, we — people and countries — have choices. So, while Trump considers the United States of America the economic centre of Earth, billions of people are waking up to the truth that 95.8 per cent of humanity lives outside America, and about 73 per cent of global GDP (gross domestic product) is generated within the other 192 member countries of the United Nations (and the two permanent observers, the Vatican and beleaguered Palestine).
In most buy-and-sell transactions worldwide, the high-handed arrogance of entitled monopolists and monopsonists cannot gain traction because of one word: CHOICE.
CHOICE AND SUBSTITUTION
Fused onto the word "choice" like a semantic Siamese twin is the robust economic concept of "substitution", which applies to current American economic animosity toward most other countries, and also to the growing hordes of frustrated Malaysian consumers and business owners.
People have choices when substitutions abound. You exercise this proactive power each time you dine out and scan menu items. If you see two meal options, which appeal equally to your growling stomach, you are likely to select the cheaper option.
When extending the selection of options made from among several (or, better yet, many) economic choices, we humans usually revert to the common sense behaviour of rejecting those who reject us and instead seeking out those who are warm, friendly and accepting.
For an extreme recent example, consider the sheer idiocy of the Trump administration barring eager, supersmart non-Americans from entering Harvard University. China's immediate (and massively logical) response was to welcome those brainiacs with open arms.
Every country's future wealth is more dependent upon the scientific, technological and business acumen of a minority of talented people — regardless of where they were born — than upon the masses who believe mere birthright dubiously grants them some form of superiority.
I suspect if America continues down this path of rejecting those who come from outside its shores, in less than a decade, other countries, led by wiser leaders, will grow at its expense. However, the proven self-correcting mechanisms in the American system of governance will probably permit the pendulum to swing back toward sanity in a few years.
So, the advantage those of us who invest globally have is a vast range of choices for the allocation of our hard-earned, hard-won and hard-retained capital.
Within our, ideally, globally diversified portfolios we should observe and think before acting.
ECONOMIC RE-ENGINEERING
Toward that end, the idea of substitution is readily understood, both within the SIPs (or savings and investment portfolios) we build lifelong wealth with, and within the narrow parameters of analysing the impact hiking a small country like Malaysia's sales and service (SST) rates can have.
In case you missed it, there was an announcement that the Malaysian government will rake in an additional RM10 billion from its most recent hikes in certain SST rates.
Time will tell if that durian runtuh -type harvest for government coffers materialises. You see, on the surface, having a competent, clean government that collects more tax revenue and which channels it toward enhancing the country's healthcare and education systems is laudable.
However, that targeted extra RM10 billion flowing to the government is RM10 billion flowing OUT from the collective pockets of all Malaysians. It's been reiterated that 85 per cent of Malaysians won't be hurt too much, while the highest earning 15 per cent of Malaysian households shouldn't begrudge this economic re-engineering.
Yet, in truth, dissatisfaction is rising like a king tide across all slices of the so-called privileged T15 — the 15 per cent of top-earning Malaysians. And the source of that dissatisfaction — increased taxes — will morph consumption habits across all socio-economic layers of this country.
When we-the-people feel that disengaged authorities are squeezing us, we will respond rationally, logically, and decisively — to protect the economic well-being of those who matter most to us: our immediate families.
Similarly, but on a larger scale, countries other than the US, especially across Asia, will evolve and grow new supply chains that exclude and sideline offensive rogue nations intent on rejecting or hurting them.
Consider that as you contemplate your key investment choices over the next three-and-a-half years.
© 2025 Rajen Devadason