KUALA LUMPUR: Malaysia’s successful push to lower the US-imposed reciprocal tariff from 25 per cent to 19 per cent marks a strategic trade reprieve — one that aligns the country with major ASEAN peers while preserving its sovereign economic direction.
The reduction, finalised on July 31 after months of bilateral talks, softens immediate pressure but leaves deeper vulnerabilities unresolved.
Economists warn that the relief is short-lived and conditional, especially given Malaysia’s heavy reliance on the US — its top export market valued at RM198.65 billion in 2024.
Centre for Market Education chief economist Alvin Desfiandi described the revised tariff as a short-term win masking structural weaknesses.
“The tariff may shave off growth, primarily through reduced exports. However, resilient domestic demand — driven by consumer spending, infrastructure rollout and Bank Negara Malaysia’s pre-emptive rate cuts — provide some buffer,” he told Bernama.
BNM’s first rate cut in five years was meant to support growth, Alvin added, but it carries the risk of currency depreciation if the US Federal Reserve maintains elevated rates.
“If growth falls below 4.0 per cent, further easing may be needed. But inflation above 3.0 per cent could tighten that room,” he said, urging BNM to strike a balance between growth flexibility and price stability.
Despite the modest headline rate, Alvin cautioned that the 19 per cent tariff could erode competitiveness in high-value sectors like semiconductors and electronics — industries already grappling with thin margins and component dependencies from China.
“Tariff stacking — where goods with Chinese parts get penalised under multiple jurisdictions — could inflate costs, undermine investor sentiment, and weaken the ringgit,” he said.
Malaysia’s reliance on Chinese components complicates compliance with US rules of origin, making local exporters vulnerable even in the absence of transhipment.
Alvin said the tariff shift signals the end of Malaysia’s low-cost FDI model, opening a window to attract higher-value investments if reforms hold.
He noted the government’s National Semiconductor Strategy (NSS) aims to pivot into advanced chip manufacturing and court US-based FDI. Emergency grants for SMEs exploring new markets are also under discussion.
“Malaysia must now trade supply chain transparency for stable US tariff treatment on semiconductor inputs,” he said, pushing for green industrial alliances and US partnerships in electric vehicle batteries, renewables, and fintech.
Alvin urged Malaysia to lead regional digital rulemaking by co-developing fintech and digital trade standards with the US — a move that could secure longer-term tech access and policy credibility.
He also highlighted Malaysia Aviation Group’s US$19 billion Boeing deal as a symbolic lever in trade diplomacy, though insufficient on its own.
“The Boeing procurement signals industrial alignment and diplomatic pragmatism but won’t rebalance trade alone,” he said.
Economist Dr Geoffrey Williams welcomed the tariff reprieve but said it should not delay structural reforms.
“A potential 10 per cent drop in US exports translates to a RM20 billion loss. That’s a serious hit for a trade-reliant economy,” he said.
Williams called for targeted fiscal discipline, not blanket subsidies, urging businesses to invest in automation, supply chain resilience and long-term competitiveness.
He said the current situation underscores the need to fully implement reforms under the 13th Malaysia Plan (13MP), warning that temporary fixes won’t substitute for real competitiveness.
Both economists stressed the importance of strategic diversification. Alvin said Malaysia’s dual-track approach — balancing ties with the US while expanding links with RCEP and BRICS — will shape its long-term direction.
“October’s ASEAN Summit is a pivotal moment. If the US offers no semiconductor concessions, expect faster pivoting toward BRICS and RCEP. The message: sovereignty isn’t worth compromising for uncertain access,” Alvin said.
He added that Malaysia’s alignment with ASEAN peers on the 19 per cent tariff could bolster regional unity in the short term — but the real challenge lies in repositioning industrial policy, securing exemptions, and locking in long-term investor confidence.
With RM378.5 billion in approved investments in 2024, the fundamentals are in place. But execution of the New Industrial Master Plan 2030 (NIMP 2030), supply chain restructuring, and smart diplomacy will determine whether Malaysia moves beyond fragility.
