US-China tensions could hurt local economic growth

Both the US and China contribute 25% of our country’s total trade, so the potential losses are huge, says analyst


A US-CHINA trade war will have severe implications on Malaysia’s economic growth, although the impact may be limited for now.

Li has also come out to declare that the country will treat foreign and domestic firms equally, suggesting behind-the-scenes negotiations between the 2 parties. (pic by BLOOMBERG)

Asian Strategy and Leadership Institute research and business development director Lau Zheng Zhou said any major disruption to the global trade environment and momentum will significantly affect Malaysia’s attractiveness for investment and hurt its growth prospects.

“In the short term, we may even see a weakening ringgit as investors move to safe-haven assets in US dollars should global trade relations worsen.

“Furthermore, both the US and China contribute 25% of our country’s total trade, so the potential losses in trade opportunities are huge,” Lau told The Malaysian Reserve (TMR).

Lau also said heavy tariffs imposed by the US will see Malaysian firms being slapped with rising input costs and falling demand for their value-added component products.

Last week, the Trump administration had announced it would impose tariffs worth US$60 billion (RM232.6 billion) on Chinese imports, to which the latter responded by announcing reciprocal measures amounting to US$3 billion, targeting 128 US products including pork, fruit, nuts and steel.

Both countries appear to have backed down from their initial hawkish overtures after reports surfaced last Monday stating that US Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer were “actively engaging” with their Chinese counterparts.

Chinese Premier Li Keqiang has also come out to declare that the country would treat foreign and domestic firms equally, suggesting behind-the-scenes negotiations between the two parties.

US equities soared to its highest in two years the same day, with the Dow Jones Industrial Average recording its third-biggest point gain ever as fears of an all-out trade war eased. However, concerns still linger should both parties fail to reach an amicable solution.

The US had earlier imposed a 30% tariff on solar equipment imports, a move that prompted Putrajaya to file a request for consultation with the world’s largest economy through the World Trade Organisation.

The duties were enforced to raise the costs of cheap imports, mainly from Asia, and level the playing field for American solar installers.

This development comes on the back of several other trade decisions that involve washing machines, consumer electronics and steel.

On market movements, InterPacific Research Sdn Bhd head of research Pong Teng Siew said the current protectionist rhetoric has

limited impact on South-East Asian counters, compared to movements in other global equity markets.

“We have a bit of a strong reaction elsewhere, but not in Asean markets. You can see the losses have been quite small against other indexes.

“Bursa Malaysia hasn’t been very volatile specifically on this news. It is not to say that we will not see any impact, but I think markets are trying to avoid pressing the panic button at this juncture. There is hope that cooler heads will prevail where the US and China can reach a compromise,” Pong told TMR.

However, Pong warned that the impact of a trade war between the US and China on Malaysia will be negative.

“If it does spread, it will be negative for us because of our exposure. It will gradually influence things like electronics and manufacturing goods. It will be substantial,” he said.