Trump 2nd Presidency: Impact on Malaysia

In the midst of local and international attention to Anwar Ibrahim's announcement of Malaysia applying to join BRICS during the commemuration of 50-year Malaysia-China diplomatic relation, there was concern on its impact on Malaysia's E&E sector. 

Immediately, MOSTI Minister Chang Lih Kang came out with a word of comfort citing it will not effect the sector and Malaysia's neutrality is cited as the reason. He said Malaysia's motivation to join BRICS is for the economics mutual benefit as if to tone down the dedollarisation motivation. 

The celebration remains on going with an exhibition at a major shopping complex. Its obviously a major charm exercise by Anwar to win China's heart. 

Not to be seen too obvious, especially on the BRICS, which in a matter of a month, Russian Foreign Minister came to visit Malaysia, Tengku Zafrul reminded that Malaysia is also part of OECD. Neutrality was also mentioned by Tengku Zafrul in his speech to his Ministry on July 18th. 

The elephant in the room is the possibility of Donald Trump returning to White House. He anticipate Trump to renew trade war against China and there will be a massive wave of relocation that will benefit Malaysia, Singapore and Vietnam.  

However, there is a contrarian view by the ANZ banking group. Malaysia is said to be the most vulnerable. Trump's second term is expected to be more isolationist, inward in foreign policy, and trade policy against China will be more prohibitive. 

Quoting from Edge report below:

Malaysia among most vulnerable Asian economies if Trump returns to power

By Jason Ng / theedgemalaysia.com

01 Aug 2024, 02:13 pm

KUALA LUMPUR (Aug 1): Malaysia would be one of the most vulnerable Asian economies in a global trade war if Donald Trump comes to power again, said Australia and New Zealand Banking Group (ANZ).

A universal baseline import tariff of 10% on all US imports risks sparking a global trade war, ANZ said, warning that the impact would be greatest on the export-oriented and manufacturing-heavy economies of Malaysia, Taiwan, Vietnam, Thailand, and South Korea.

“Malaysia, the Philippines and Taiwan could be vulnerable to shifts in the electronics integrated circuit supply chain,” the house said.

Malaysia hosts some of the world’s largest electrical and electronics companies, ranging from semiconductor giant Intel to consumer electronics maker Samsung, and from computer storage company Western Digital to power tool manufacturer Bosch.

The country is also the seventh largest semiconductor exporter with 7% of global market share, and accounts for 13% of the global share of chip assembly, testing and packaging in the supply chain, according to the Malaysia Semiconductor Industry Association.

As the Republican presidential candidate, Trump is going into the US election in November promising far more prohibitive trade policies than those implemented during his previous term.

In addition to the universal baseline import tariff of 10%, Trump has also proposed a 60% tariff or more on all US imports from China, which is likely to cut into aggregate demand in both economies and “put the global supply chain in disarray”, ANZ said.

Any potential gains for the rest of Asia from trade diversion and production relocation, meanwhile, will be limited by growing risk of Trump making it more challenging for products with significant Chinese content to enter the US, the house said.

That could also prompt Chinese exporters to strengthen their presence in non-US markets, raising competition for Asia not only in non-US export markets but also within domestic markets, ANZ cautioned.

“Asian economies with high levels of export similar with China or with weaker manufacturing bases would be impacted,” the house said.

Chinese companies are already under pressure, as growth in their home market decelerate and the Chinese economy is expected to undergo a structural slowdown over the medium term. The World Bank projects China’s growth to slow to 4.5% in 2024, from 5.2% in 2023.

“We also anticipate greater export competition among Asian economies in non-US markets, as well as greater penetration of Chinese exports in Asia’s domestic markets,” ANZ said. “Sustained weakness in China’s economy will likely exacerbate this competition.”

That is the geo-economics assessment. The over-riding factor will be the geo-politics.

An indication of the American view is the website fn the Council of Foreign Relation (CFR) which republished an article by Joshua Kurlantzick on Japan Times on the impact on South East Asia dated May 10th here. 

The author's blog post dated May 23rd (also republished on CFR here) provided an abridge version of the earlier article. Extract below:

In a recent Japan Times piece, I wrote about how a second Trump term might affect Southeast Asian countries. Most importantly, former President Trump would likely force Southeast Asian governments to choose between China and the United States, a decision most of them, save possibly the Philippines, do not want to make. Yet Trump’s more rigid approach to China—and China’s tougher response to the United States—may make the long-standing Southeast Asian practice of balancing between the superpowers no longer possible. This delicate balance involves deriving increasing trade and investment from China while often still building security ties with the United States. To most Southeast Asian states, this scenario is a nightmare. 

His assessment on Malaysia below: 

Malaysia: Although Malaysian Prime Minister Anwar Ibrahim has enjoyed warm relations with the United States and lived and worked there for a time when he was essentially in exile, his government has not enjoyed any honeymoon with Washington. Seeking to keep Muslim religious conservatives in his political camp, Anwar has done little to stop the spread of policies that could prioritize Muslims in some ways and reduce the rights of the Chinese and Indian communities. He has not fought corruption in the way that many U.S. leaders believed he would, and he has assiduously courted China.

In addition, after the Israel-Hamas war in Gaza, he has been by far the most outspoken leader in Southeast Asia, slamming Israel and the United States’ activities related to the war. Anwar has maintained ties with Hamas, angering the United States, and recently met with Hamas representatives in Qatar. As the Malaysian population, composed of majority Malay Muslims, becomes more conservative, it is increasingly less enamored of the United States. Another Malaysian leader other than Anwar would likely push the country even farther in the direction of China, especially if forced to choose. Malaysia has also had a trade surplus with the United States for many years, which could anger a second Trump administration.  

Anwar protested to the July 13th assasination attempt on Trump, but to what extent it will soften his stance towards Malaysia in view the "fiercely independent" remark at the 10th Asia Summit in Singapore September last year which would have been interpreted  justifying leaning towards China.

A study by ISEAS published in April 2024 found: 

"More than half of people in Southeast Asia would side with China over the United States if forced to choose, a survey has found, underscoring Beijing’s growing influence in the region."

It only made South East Asia a new battlefield for US-China competition. US need more than military threat to be accepted. Will Trump pull US out of the next global chip giant and playing both side blow up in Malaysia's face?  

Perhaps Anwar done his balancing. Revisit July 1st posting entitled: Is GIP needed because China's BRI fund dried up?