Malaysia could see more US companies shifting into the country

The increase in Malaysian exports is among economic indicators pointing towards trade diversion effects, says expert

by SHAZNI ONG / pic by RAZAK GHAZALI

MALAYSIA could expect to see more US firms establishing their presence in the country as the Sino-US trade war continues to drag on without much signs of cooling off.

Sunway University Business School economist Prof Dr Yeah Kim Leng said Malaysia is one of the key beneficiary countries that could take advantage of the trade diversion, which is a result of the ongoing trade war.

“It is not surprising. American importers are trying to diversify their imports away from China because of the 25% tariffs which are quite substantial.

“In the case of Malaysia, American companies in Malaysia would likely be ramping up their production — especially to substitute for imports from China.

“That is one of the contributing factors for Malaysia’s better than expected export performance in the last few months,” he told The Malaysian Reserve yesterday.

Yeah said the increase in Malaysian exports is among the economic indicators that are pointing towards trade diversion effects.

“We have seen an increase in exports for certain products to the US, whereas China’s exports to the US have correspondingly declined.

“But we also have to be cautious — largely because US Customs can also impose tariffs if they suspect there is a circumvention of tariffs by exporting through other countries,” he said.

According to a report by AFP recently, big US firms are expediting efforts to move more of their supply chains from China to neighbouring countries, including Malaysia, in light of the Trump administration’s tariffs.

US President Donald Trump has, since last year, slapped 25% duties on US$250 billion (RM1.03 trillion) worth of Chinese imports and threatened additional levies on all other Chinese items coming to the US, although the two sides agreed on a “ceasefire” last month.

Trump’s trade measures have led some multinationals to fortify their North American operations and others to transfer some manufacturing capacity from China to any number of countries, including Vietnam, Cambodia, Malaysia, the Philippines, Bangladesh, India and Ethiopia.

Among the sectors involved are technology, clothing and footwear.

Yeah also said the move by foreign companies into Malaysia would more likely be a gradual progression, as the trade talks are still continuing.

“It is unlikely that they will make any firm decision to relocate their production facilities until there are clearer signs.

“But now, I think companies are taking actions to diversify the trade tariff risks geographically in the longer term, to avoid being impacted by future trade wars and given the unresolved continuing trade tensions.

“That will also spur a gradual, more cautious approach towards relocating their facilities,” he said.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid, however, appears to have a different view on the matter.

“While the trade diversion stories seem to be beneficial to Malaysia, the idea of imposing higher tariffs by the Trump administration is to ask US companies to produce more goods on US soil.

“(This is) so that there will be more jobs available to their citizens. In some sense, there could be a risk that Malaysia would be the next target if the surplus trade balance continues to grow as a result of the trade diversion.

“Already, Malaysia has been designated in the monitoring lists by the US Treasury Department in May 2019. Perhaps, we need to be mindful on the potential implications,” he said.

Meanwhile, US-Asean Business Council senior VP and regional MD Ambassador Michael W Michalak said the supply chain transfer has begun and is accelerated due to the trade issue.

He said US companies are now expediting the move to transfer more of their supply chains from China to neighbouring countries following the tariff policy, which is suppressed by the Trump administration.

“The shift, the signal in (moving) supply chains has been going on for some time. The trade war has just accelerated

that shift,” he told reporters at “The Potential of Industry 4.0 for Malaysian SMEs” workshop in Kuala Lumpur yesterday.

International Trade and Industry Minister Datuk Darell Leiking, who was present at the workshop, said the movement of foreign companies into the country has been quite big and that it is of extreme importance for Malaysia to take advantage of the situation.

“The Industry 4.0 environment has to be enhanced further in Malaysia, so that we will become enticing to most of them.

“At the same time, the regulatory part of the government will also need to be looked at, so that when they come into Malaysia, they will be able to have the facilities that they previously enjoyed, but in a better way,” he said.

Michalak conceded that more American companies would head to Malaysia if the government continues to get the regulatory environment aligned.