
Asean–China economic ties through the lens of ACFTA
Against this backdrop, the recent US trade policy, involving increased tariffs on imports and targeted barriers against China, poses a dual threat to Asean. Firstly, it reduces Asean exports to the US. Secondly, it could exacerbate China's overcapacity, which potentially overflows to Asean markets.
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While regional peers such as Indonesia and Vietnam have already struck last-minute deals to reduce their tariffs to 19 per cent and 20 per cent, respectively, Malaysia is still seeking favourable terms that safeguard local industries without compromising national interests. The proposed tariffs — a revival of protectionist measures introduced during President Donald Trump's first term — have stirred fresh uncertainties across Southeast Asia, where economies are deeply embedded in global supply chains. Investment, Trade and Industry Minister Tengku Datuk Seri Zafrul Abdul Aziz has described the ongoing talks with the US as progressing well, with emphasis on striking a balanced outcome. "This low-profile approach fits with Malaysia's broader strategy, namely maintaining economic openness, avoiding entanglement in great power rivalries, and preserving regional alignment within Asean. "By staying restrained, Malaysia may be aiming to protect its long-term credibility as a stable, rules-based partner," said Innes. That said, he cautioned that the exposure is real as Malaysia's export economy is heavily tilted toward electrical and electronic goods, precision machinery, and intermediate components, many of which plug directly into US-bound supply chains. A 25 per cent tariff could disrupt flows, especially in semiconductors, sensors, and specialised modules that are difficult to reroute, he said. "The pain would be felt most in hubs like Penang, where small and medium enterprises and multinationals are deeply intertwined. "While some firms could shift volumes elsewhere, the high-tech nature of these exports makes substitution harder than it sounds," said Innes. The absence of a bilateral Free Trade Agreement (FTA) with the US limits Malaysia's negotiating toolkit, but Innes believed it doesn't shut the door entirely. 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"But any deal must be carefully structured. It should channel benefits beyond just large exporters towards local suppliers, workers, and tech development ecosystems," said Innes, highlighting that if no deal is reached, the impact may not be catastrophic at a national level, but could be meaningful in key sectors. "Export growth could slow, investment plans may be paused, and employment could tighten in affected industries. The greater risk is longer-term: losing ground in a global supply chain reshuffle that increasingly rewards agility and alignment. Malaysia still has room to move, but the window is closing," he added. Meanwhile, Moody's Analytics economist Denise Cheok said Malaysia's economic exposure to the US through value-added trade is more significant than headline export figures suggest. 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"The key manufacturing sector is likely to be hit hard — not only by the direct impact of the tariffs but also by global supply chain disruptions caused by the uncertainty surrounding tariff policies," she said. Cheok added that Malaysia, like many of its Southeast Asian peers, relies heavily on exports as part of its growth model, and structural changes to this would be difficult, even in the long term. "The fractured relationship between the US and its trading partners will likely continue beyond the next three years, and Malaysia should continue strengthening its trade relations with other economies, including Asean, as a counterbalance to this," she said. — BERNAMA