PETALING JAYA: Is the Trump administration’s tariff bazooka pushing the world into an ugly trade war?
Mexico and China have vowed to retaliate against US President Donald Trump’s tariffs that will take effect today.
Even the United States’ long-time ally, the European Union (EU), has promised to “respond firmly” after Trump said he will “absolutely” impose tariffs on the bloc for treating the United States “so terribly”.
Canada went one step ahead and slapped 25% tariffs on C$155bil of American goods.
The good news for Malaysia is that it is not directly targeted – yet.
However, Trump had on Jan 31 threatened to impose 100% tariffs on the BRICS bloc – in which Malaysia is a partner state – if it creates a new currency to bypass the US dollar in international trade.
These developments have shaken global financial markets. All key Asian stock exchanges declined yesterday, while European and US equity futures dropped sharply at the time of writing.
Major currencies were mixed against the US dollar, and popular cryptocurrencies slumped amid mounting fears about the future of the global supply chain.
An analyst told StarBiz that Trump has unleashed a “period of uncertainty” for global markets. “Investors are scrambling, but this is just the beginning.”
Across Bursa Malaysia, losers exceeded gainers yesterday at 589 and 383, respectively. The FBM KLCI slipped 0.21% to close at 1,553.63 points, hitting its lowest level since August 2024.
The benchmark index has been on a downward trend since September, amid continued outflow of foreign funds.
For the week ended Jan 31, 2025, foreign funds saw a net outflow of RM503.3mil from Bursa Malaysia, extending the trend for the 15th consecutive week.
The ringgit, along with other regional currencies like the Singapore dollar, Thai baht and South Korean won, closed the day in green territory.
However, countries directly affected by Trump’s tariffs, such as Canada and Mexico, saw their currencies hit multi-year lows, while the Chinese yuan also weakened.
In the crypto space, bitcoin dived to below the US$100,000 mark, standing at about US$95,000 at the time of writing.Ethereum also fell by 17% yesterday.
Investors are worried about the impact on the global economy following Trump’s tariffs and retaliatory measures from affected countries.
A US administration official warned that each executive order included a retaliatory clause, meaning any countermeasure by the affected countries could trigger further US tariff increases.
This escalatory stance raises the risk of a full-scale trade war, threatening global economic stability and straining US relations with key partners, according to Hong Leong Investment Bank (HLIB) Research.
HLIB Research noted that Trump’s tariffs, covering key supply chain inputs and consumer goods, risk exacerbating inflation.
“However, should inflationary pressures intensify due to the tariffs and rising inflation expectations, the Federal Reserve could delay rate cuts or even resume rate hikes to restore price stability.
“In the immediate term, we expect the ringgit to weaken amid heightened global uncertainty and trade tensions.
“The trade conflict introduces global economic uncertainty, leading to short-term ringgit weakness, though an appreciation is expected in the second half of 2025 to average RM4.35 against the US dollar.”
CIMB Investment Bank Bhd regional head, treasury and markets research, Michelle Chia, said Trump’s policy approach is likely to heighten competitive pressures in global trade and exacerbate bilateral tensions.
However, she noted the overall trend of lowering trade barriers remains, with global average-weighted tariffs decreasing as regional trade agreements deepen and expand, opening new markets for displaced trade.
“In addition, it is unlikely that the United States will replace large swaths of its imports with domestic production in the near term – either due to the gradual need to build domestic capacity or due to high costs.”
Chia said Malaysia is in a position to benefit from production relocation and supply chain extensions, especially in sectors with high strategic importance or intellectual property sensitivity for US companies and multinational corporations, including electrical and electronics products.
The country could also gain market share in sectors where its exporters compete directly with China.
That said, Trump is still considering a universal tariff on all countries, potentially lower than the additional rates imposed on China, Mexico and Canada.
UOB senior economist Julia Goh opined that the universal tariffs may depend on negotiations.
Hence, there is a possibility that Trump’s final policies could be more measured.
“As such, despite some market relief that Trump did not impose immediate tariffs on his first day in office, we have the view that the threat of tariffs is still in play.
“The question is the timing and extent of tariffs should Trump be open to negotiations,” she told StarBiz.
Goh said Malaysia’s economic growth remained supported by domestic tailwinds despite external headwinds, with household consumption the biggest driver, particularly in sectors like food and hospitality where spending continued to be sustained.
“Malaysia’s investment upcycle is another compelling driver. Based on the profile of investment projects approved, there is conviction that the current investment momentum can sustain in 2025.”
She said national masterplans and structural reforms can help broaden and deepen capital expenditure investments.
“Another investment catalyst is the potential that arises from the Johor-Singapore Special Economic Zone, leveraging on the strength of two economies and one ecosystem,” she added.
