Nearly each main exporting economic system was hit by U.S. President Donald Trump’s “Liberation Day” tariffs in April. Malaysia was no exception, getting a 24% “reciprocal tariff” on its exports to the U.S. which, whereas maybe not as catastrophic a stage as a few of its neighbors, nonetheless posed a big risk to the Southeast Asian economic system.
But, Malaysia’s authorities took a extra measured response to new U.S. protectionism. Whereas Prime Minister Anwar Ibrahim criticized Trump’s determination, he additionally declined to take retaliatory motion in opposition to the U.S., and tried to construct a united Southeast Asian response to Washington’s strikes.
“When Liberation Day hit, we didn’t panic,” Amir Hamzah Azizan, Malaysia’s Finance Minister II and YB Senator Datuk Seri, defined Monday throughout the Fortune Innovation Discussion board in Kuala Lumpur. “We weren’t going on the market and saying ‘I’m going to reset my [growth] targets,” he mentioned.
As a substitute, he prompt Malaysia’s broad commerce ties to nations like Singapore, China, and the U.S. helped it stand up to shocks from anyone specific nation. “The Malaysian economic system has very deep diversification,” he defined, noting no market makes up greater than a 30% share of the nation’s exports.
In late October, the U.S. agreed to decrease tariffs on Malaysian items to 19%, in alternate for Malaysia addressing non-tariff obstacles on U.S. items and offering higher market entry. The Southeast Asian nation additionally secured tariff exemptions for key exports like palm oil, rubber, plane components, prescription drugs, and different key exports. And whereas Malaysia’s tariffs stay greater than the pre-Liberation Day baseline, comparatively steeper tariffs on different economies like China might push provide chains to maneuver to the Southeast Asian nation.
Balancing the funds
Malaysia had a powerful third quarter, with GDP development of 5.2%, in addition to a fiscal deficit of three.8%, far decrease than the 6.4% reported throughout the COVID pandemic. Malaysia turned to fiscal stimulus throughout these disaster years to stabilize the economic system and defend weak populations, but Amir Hamzah referred to as that stage of spending unsustainable.
As a substitute, Malaysia must have each monetary self-discipline and focused funding whose returns movement again into society, in an method the finance minister referred to as “lifting the ceiling, lifting the ground.” Malaysia has made powerful choices to stability the funds, together with elevating some taxes and lowering diesel and gasoline subsidies.
Nonetheless, Amir Hamzah famous that solely the highest 15% of Malaysians reported a rise of their electrical energy payments, which he characterised as being a part of the nation’s vitality transition.
“We’ve a transparent path ahead of how we’re going to transition the economic system into greener energy,” mentioned Amir Hamzah. This contains better use of renewables similar to photo voltaic and hydro in addition to importing clear electrical energy via an expanded ASEAN energy grid.
Malaysia may also encourage the nation’s power-hungry knowledge facilities to function extra effectively and use much less water, he mentioned.
Amir Hamzah credited his enterprise expertise for main oil firms like Shell and Petronas for a data-driven method to fixing issues. “What I convey to the desk is a capability for us to truly have a look at uncooked knowledge [and] begin making choices primarily based on what we have to do,” he mentioned.
Transferring up the worth chain
Malaysia is tightly built-in into a number of world provide chains for superior manufacturing, together with semiconductors, aviation, and automotive components. The nation has performed this position since as early because the Seventies, when Intel arrange its first non-U.S. chip plant in Penang.
“We’re not on the high finish of the chain…so we’re not a risk to the aspirations of the U.S., who needs to convey a number of issues again residence,” Amir Hamzah defined. “What we’re doing is [staying] within the center…and enhance the complexity of the economic system, and as we do extra of that, we strengthen the worth chain.”
Malaysia now goals to maneuver up the worth chain, with forays into each chip design and superior manufacturing. In March, Malaysia’s authorities introduced that it could pay $250 million for a few of Arm Holdings’ superior chip blueprints, which native chip companies might use in their very own designs.
Long run, Amir Hamzah mentioned Malaysia was a dependable accomplice to world firms–together with these from the U.S. and China. “Our proposition to each is to say we’re key to your long-term provide chain,” he mentioned. “We offer 80 million items that you simply want within the long-term to assist your development.”
