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Free Malaysia Today

We're done catching a cold when US sneezes, thanks

So it has come to pass: the '90 trade deals in 90 days' deadline set by US President Donald Trump is up, and as expected, there weren't 90 deals signed. However, Malaysia is among the ever-increasing number of countries receiving a form letter from Trump inviting us to trade with the US, the richest country in the world. Such letters, unprecedented as they are, are what now pass for trade deals and diplomacy. We'd certainly like to accept that invite, although the threat of harsher tariffs by Aug 1 if we didn't is a bit of a concern. The new Aug 1 deadline is firm… or flexible… or firm… depending on who and when it's being mentioned. So here we go again. Meanwhile Malaysia, both as a country and as the current chair of Asean, is cozying up to BRICS, the grouping of newly emerging economies that's grown since Brazil, Russia, India, China and South Africa became founding members. Turning to BRICS certainly carries some risks. Trump has threatened a 10% tariff on BRICS members if they try to overturn the status of the US dollar as the world's reserve currency through what is called 'de-dollarisation'. And even before doing so, he has already imposed a 50% tariff on Brazil for being mean to him as well as to his friend, the embattled previous president of Brazil, Joao Bolsonaro. And this is happening to a country with whom the US actually enjoys a positive balance of trade. Some Malaysians are rightfully worried about us also raising Trump's ire. Given the importance of trade with the US, these are valid fears, and it's understandable that some feel we should keep our heads down. What Malaysia should do But here are some perspectives on why I think it's worth the risk. First, we're never going to get zero tariff from the US, unless Trump is especially besotted with us, as he is with Russia. Even if our balance of trade is in favour of the US – as with Australia, Singapore, and Brazil – we'd still be hit by tariffs under one pretext or another. Trump is not beyond tearing up trade agreements he doesn't like, even those that he himself had signed earlier. Why? Because in spite of all the claims about fixing the balance of trade, the main reasons tariffs are being imposed by the US are quite simple. One is that Trump is a bully who enjoys the disruption he creates. He gets people all worked up in an uproar and then sits back and enjoys the spectacle. Once that has become normalised, he'll do something even more outrageous. And the cycle repeats again and again. So, expect more outrageous claims and accusations and threats, whether about trade or about anything else at all. Using up all the oxygen in the room has worked for him before, and he's just replaying his old favourites. The other, even more important reason, is tariffs have become the ideological nirvana of the extreme right MAGA Americans. These people, many of whom actually regard taxation as theft by the state against its citizens, have already passed laws that'll bring down the taxes of the ultra-rich, who are often their supports or their donors. Back to the 19th century Meanwhile Trump has spoken about setting up an External Revenue Service to handle tariffs, much like the Internal Revenue Service that now handles income taxes. The goal is to reduce the income taxes to nothing, and derive all the revenue needed to run the country through tariffs alone. Everything else, such as bringing back manufacturing, is just a distraction, especially the outright lies that it's the foreign countries and not local US citizens and businesses who will actually pay the tariffs. The America that Trump wants to make great again isn't the America that sent men to the moon, or helped win World Wars I and II. He's harking all the way back to the 19th century, before income taxes were introduced, when tariffs were the government's chief revenue earner. So, tariffs would be imposed by Trump on other countries no matter what. That they would wreak havoc on the US and global economy is not something that keeps him awake at night. It is delusional to think we could sweet talk our way out of them. Here's a way forward we need to consider. No country has borne the brunt of the US's economic and political aggression more than their closest neighbour, Canada, which now faces multiple tariffs, including 50% tariffs on steel and aluminium – two of its biggest exports to the US. Such a level of tariffs would be devastating on Canada – but the country has recognised that danger early enough and is pivoting away from the US, to other more friendly parts of the world, especially Europe and Asia. Canada's latest trade figures show an unsurprising decline in exports to the US, but surprisingly, a growth in total exports due to new foreign markets especially for oil and gas and agricultural products. Recession in US Meanwhile, the US economy, all claims and boasts aside, shrunk in the first quarter, and is likely to have shrunk in the recently concluded second quarter too, which would place it officially in an economic recession. And the US is also running up new and old debts by the trillions now and over the coming years, amid higher interest rates and a reduced appetite for US bonds among traditional lenders. It's clear by now the US is not playing some brilliant 4D chess. Other nations are finding out that appeasing Trump doesn't take the target off your back, and that moving forward to form new alliances and creating new markets might just be the only solution. The US doesn't have all the cards it claims to have. At some point, the combination of the inevitable recession, escalating inflation and high interest burden on their national debt and their economy at large will either bring about a 'regime change' or – as some wags have nicely put it – a 'chickening out'. While we must always be sensitive about the increasing unpredictability and even irrationality of the US, we mustn't forget an important factor – that BRICS, in its current membership, already has a total economy bigger than the G7 industrialised nations, which includes the US. Taking the BRICS road While focusing on the US, which forms a quarter of the world's economy, we mustn't forget the bigger, faster-growing and friendlier economies of BRICS. While BRICS are still far away from some truly earth-shaking moves, such as a common currency or outright de-dollarisation of trade, the US is forcing everybody else to look for new allies and friends and to reprioritise their strategies. We're basically surrounded by BRICS – India and China at the top, and Indonesia down below – with Asean itself becoming an increasingly recognised bloc. People in the west even know what Asean stands for now, as opposed to an American colleague of mine years ago who corrected me when I mentioned Asean, saying that is not how Asian is spelt! For too long we've taken the easier route of putting most of our eggs in the US basket. And for the longest time, that had benefited both parties tremendously. That relationship, however, in the words of Canada's Prime Minister Mark Carney, is over. Even without a US recession, the economic growth of an expanding BRICS would mean the US would have a slowly diminishing share of the world economy. This inevitability is also being speeded up by the US behaving unpredictably and often capriciously against its friends and allies. Look at how horribly the USA is treating Vietnam and Cambodia, countries that it almost destroyed during the Vietnam war. And yet these are countries that actually tried to suck up to Trump by being among the earliest to sign trade deals. That didn't work. Neither did it work for the United Kingdom, all lost and alone post-Brexit, obsequiously and embarrassingly sucking up to Trump. The humiliation may have been worthwhile had they obtained something meaningful, but they didn't. Future outlook Surprisingly, the new tariffs against Malaysia may not hurt us as much as you think. Competitors from Thailand or Indonesia or China for some of our key exports to the US, such as rubber gloves and medical products, face even higher tariffs than Malaysia. Not to mention that manufacturing of these products is never, ever, going back to the US, tariffs or no tariffs. Regardless of all that, Malaysia still has to start looking around for new markets and trade partners. That means pulling Asean closer together into a real economic bloc, but it also means making friends among the giants of tomorrow, such as China, India and the other BRICS economies. At some point, this madness in the US will be over, but it'll leave behind a much diminished and isolated US. The future won't be dominated by old, sclerotic Europe or Japan, or self-sabotaging US. It'll be a world dominated by BRICS. We have to make our moves early, and along with Asean, become a significant force charting the way forward for BRICS. That certainly doesn't mean abandoning the West, but it does mean that we will no longer live in fear of catching a cold when the US sneezes. The views expressed are those of the writer and do not necessarily reflect those of FMT.