Malaysia braces for shake-up in supply chains in wake of US tariffs

Straits Times

20 hours ago

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Malaysia's Investment, Trade and Industry Ministry said in a statement that it maintains an independent foreign and economic policy.
PETALING JAYA - Global and local supply chains are set for a major reshuffle, regardless of whether the United States under President Donald Trump moves ahead with new tariffs, according to economists.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the government has done their due diligence and scenario-building exercise in anticipation of the
tariff announcement by the United States.
'US President Donald Trump's tariff is beyond the government's control,' he said on July 7.
'Therefore, they need to be pragmatic on how best to deal with such a problem.'
The government, added Mr Mohd Afzanizam, remains non-partisan but is also exploring all possible opportunities following the upcoming US tariff policy.
'I suppose there will be reconfiguration of the supply chain, and the Covid-19 shocks have taught us well about over-­concentration of the supply chain,' he said, adding that the reconfiguration of the supply chain will happen with or without the US tariff.
'The way we see it, the US tariff would accelerate the need to reconfigure the business supply chains.'
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On July 4, Mr Trump said the US government will start sending out letters with details of higher tariff rates that will take effect on Aug 1.
Mr Trump said as many as 12 letters will be sent out over the coming days, and the levies will range from '60 or 70 per cent tariffs to 10 to 20 per cent tariffs', but did not name the countries due to receive them.
So far, semi-conductors are exempt from tariffs, but Mr Trump has threatened levies on them several times, and that uncertainty is making it difficult for businesses to plan for the future.
Mr Trump has also threatened to impose an additional 10 per cent tariff on countries aligning themselves with the 'Anti-American policies' of the Brics group of developing nations, whose leaders kicked off a summit in Brazil on Sunday.
Economist Geoffrey Williams said Malaysia could face both direct and indirect impacts should tariff talks fail.
'Directly, there may be some effects on exports to the United States, especially with semiconductors largely excluded,' he said.
'Indirectly, if other countries are belligerent, then global trade disruption could hit Malaysia's already-squeezed net trade.'
While total trade and exports are rising, Malaysia's net trade has been on a downward trend since August 2023.
'Any further decline will weigh on the 2025 economic outlook,' Dr Williams said.
Malaysia's electronics sector may remain relatively insulated, but other industries could be forced to adapt to maintain competitiveness.
Dr Williams added that Malaysia should avoid taking sides in any US-Asia trade conflict and instead pursue diverse partnerships.
'The smartest policy is to reduce tariffs and non-tariff barriers. Let consumers decide.'
He also called on the government to clearly state where negotiations stand.
'If Malaysia receives a letter in the coming days, the response must be swift and positive. Be smart in the negotiations, not belligerent,' he added.
Sunway University economics professor Dr Yeah Kim Leng said the additional 10 per cent on top of the 24 per cent reciprocal tariff, currently under negotiation, will likely raise the price of Malaysian goods imported into the United States.
'It will cause a supply or price shock to US importers as the latter will have to bear the tariffs.'
Meanwhile, the Investment, Trade and Industry Ministry in a statement said Malaysia maintains an independent foreign and economic policy.
'Our engagement with any multilateral platform is focused on trade facilitation and sustainable development, guided by national interest, not ideological alignment,' it said.
'The US remains one of Malaysia's key economic partners, not only through trade but also through the multi-billion dollar American investments that have been established in Malaysia for more than 50 years.'
On April 2,
Mr Trump announced his Liberation Day tariff package, imposing staggeringly high tariffs on the entire world, including 20 per cent or higher tariffs on major US trading partners.
A week later, he paused some of these tariffs. THE STAR/ASIA NEWS NETWORK