KUALA LUMPUR: Malaysia’s exports will likely grow at a slower pace of 4% this year versus an estimated 5.1% in 2024 on the back of higher tariffs that are yet to be implemented by US President-elect Donald Trump.
Socio-Economic Research Centre (SERC) executive director Lee Heng Guie said despite US imports rising between 2018 and 2022, the tariffs that have not been announced yet could hit export volumes this year.
He said it will be a waiting game to see if Trump immediately begins announcing tariffs, or if he will settle into the role and wait for things to become clearer.
Malaysia’s share of exports increased 1.3% in January to November last year, while imports from Malaysia to the United States grew by 7.7% per annum from 2018 to 2022.
The United States is Malaysia’s third-largest trading partner while Malaysia is the United States’ 18th largest trading partner, as seen in data from January to November 2024.
Lee said for Malaysia, trade diversion will be the key that softens any kind of blow from the tariffs that Trump is set to impose on other countries.
“Under Trump 1.0, despite people thinking it will be moderate to negative, it was actually quite positive.
“Now, under Trump 2.0, he has learnt to be smarter.
“He is aware that many countries are using third-party countries to divert to, so now he is imposing blanket tariffs on countries,” he told reporters during SERC’s Malaysia’s Quarterly Economy Tracker 2024 and Outlook for 2025 here yesterday.
As the world braces for a tariff war, supply chains are likely to be impacted, particularly for countries like China and Mexico.
Lee said there will be some benefits as companies shift orders from China to countries like Malaysia.
“Malaysia is in a strategic position for reconfiguring sourcing and supply chains under the China+1 and Taiwan+1 strategies, but the extent of the gains will depend on how well Malaysian manufacturers adapt to sourcing alternatives,” he said.
“The direct and indirect impacts of trade war on Malaysia’s export performance is largely dependent on the substitutability of the affected products, reconfiguration of supply chains and production, transshipment and Malaysian firms’ products’ cost and price competitiveness,” Lee said.
He added Malaysia must continue to engage with trading partners and foreign investors to sustain long-term strategic investing into the country.
“Local businesses and manufacturers have to strengthen their capabilities in terms of cost competitiveness and process efficiency, product quality, supply chain diversification and market diversification,” he said.
On the local outlook, Lee said the Malaysian economy will stay on course despite the headwinds that are about to appear this year.
He noted the last two years were good and the challenge now is to keep the momentum going, while addressing underlying concerns coming from both external and internal sides.
“Our outlook for this year is a 5% economic growth, we are positive judging from some of the data. Industrial production has shown an uptick, trade exports are good, evident by the 4.7% growth in the first 11 months of 2024, and unemployment rate was stable at 3.2%,” he said.
According to Lee, key drivers to this growth will include firm labour market conditions and improvements in discretionary consumer spending.
“These will be supported by the higher minimum wage, higher cash aids and the EPF Flexible Account.
“The startup of delayed construction projects and ongoing public infrastructure projects are also likely to boost the economy,” he said.
