KUALA LUMPUR: Deputy Minister of International Trade and Industry Liew Chin Tong (pic) has called for a collective approach to address the emerging challenges Asia faces in the shift toward a new development order.
Speaking at the Common Action Forum 2024 yesterday, Liew cited an article by economist Stephen Roach, who highlighted that officials in Asian economies believed the tariffs threatened by incoming United States President Donald Trump were a “bluff.”
On this front, Liew emphasised that Asia must confront four key challenges to secure future prosperity, beginning with the region’s heavy dependence on the United States as an export market.
“Asian economies grew rich by exporting to the United States and we must acknowledge that most Asian economies are still heavily dependent on the United States as a market,” he said.
He pointed out two contradictory forces at work – while the United States middle class is shrinking due to decades of outsourcing manufacturing jobs to Asia, it is struggling to consume as income levels drop.
Meanwhile, he said Asian economies are experiencing unprecedented productivity, largely driven by the rapid adoption of technologies such as artificial intelligence.
“The productive capacity is at an unprecedented level, yet the market has shrunk,” he said.
“Hence, the first major challenge is how not to depend on the United States as the almost sole consumer market for all the exports from Asia and beyond.”
Against this backdrop, Liew cautioned businesses against using Malaysia merely as a re-badging hub to circumvent US tariffs, citing the solar panel sector as an example.
“Over the past year or so in my current portfolio, I have been advising many businesses from China not to invest in Malaysia if they were merely thinking of rebadging their products via Malaysia to avoid US tariffs.
“As we have witnessed in the solar panel sector, whether under a Democratic or Republican administration, the tariffs will catch up with them,” he said.
The second challenge, according to Liew, is the creation of a robust consumer market in Asia.
He noted that while China’s middle class has expanded significantly, other regions in Asia, particularly Asean, have seen stagnation.
“For us to imagine a future in which Asian economies do not necessarily have to export most of their produce to the United States, we desperately need to have more consumers in Asean, the Middle East, Africa and South America,” he said.
He stressed that this can only be achieved by providing decent wages to workers, thus fostering a sustainable middle class.
“Over the past few decades, even when Asian economies grew rich, it was achieved by suppressing wages and depriving workers’ rights in order to attract foreign investments which would, in turn, export to the United States mostly.
“We now have to rewire our brains to accept that Asia will only continue to grow if workers have sufficient incomes to consume as part of the middle class,” he noted.
The third challenge, Liew said, is the need for “more innovation but not killing jobs.”
He explained that due to the way the export-oriented economy is organised, productions are often vertically integrated globally within firms’ supply chains.
However, he said the innovation and technologies do not always spill over into society, which limits horizontal linkages with other parts of the economy.
“Malaysia is a case in point. Quite a few of Malaysia’s semiconductor firms are producing automotive chips, yet the foreign direct investment-driven semiconductor industry has very little linkage with the automotive industry in Malaysia,” he said.
Liew also cautioned about the potential job redundancies caused by the application of technology.
“We need to create jobs that pay adequate wages to build a middle class as envisioned,” he added.
Lastly, Liew said Asia needs a “care economy” that should be funded by taxes.
He explained that the care economy is an area where decent jobs could be created, as many of these jobs are not easily replaced by robots.
However, he stressed that the care economy requires progressive taxation to sustain it.
“But the care economy needs progressive taxation to sustain,” he noted.
Liew highlighted that Asia is aging rapidly without necessarily growing richer.
He pointed to China’s current economic challenge, where consumer demand has shrunk due to a lack of confidence in the future.
He said the savings are tied up in the property sector, which has seen a broad decline in value and that there is anxiety over inadequate social security and costly care services.
“In short, consumers won’t spend if they don’t feel economically secure and have no positive feeling or confidence about the future,” he said.
Liew emphasised the need for Asian economies to build and fund a more robust care economy, one that caters to healthcare, aged care and childcare.
Such an economy, he said, would provide a strong sense of economic security, support female labour participation and address population challenges through increased fertility.
To fund this, Liew stressed that taxes will have to be imposed.
He noted that for decades, Asian economies have competed to lower taxes for the wealthy and offered tax holidays to multinational companies.
“To build a stronger future together, businesses will have to work with governments to exchange tax cuts for economic security for the wider group of citizens and a more secure business environment for everyone,” he added.
Meanwhile, Liew expressed concern over the transactional nature of free trade agreements, urging former latecomers-turned-technology owners to adopt a more equitable trade relationship in Asia, with shared knowledge and joint research and development to strengthen supply chains.
He emphasised that upper-middle-income countries like Malaysia should think more about to “prosper-thy-neighbours,” expanding economic cooperation beyond trade and investment.
He hopes Malaysia’s 2025 Asean chairmanship could pave the way for a new era of economic cooperation aimed at turning Asean into a middle-class society by 2045, with no one left behind.
Liew also believes Malaysia should reconsider its approach to Bangladesh, advocating for investment there rather than seeing it solely as a source of cheap labour.
“This will enable Malaysia to move into more innovation-intensive endeavours with less unskilled foreign labour.
“This, at the same time, will bring development to Bangladesh and allow Asia to grow together,” he said.
