US-China trade war opens opportunities for Malaysia — HLIB
20 May 2024
Malaysia’s neutral position in the ongoing US-China trade war enables it to capitalise on trade diversions and attract foreign direct investments (FDIs), said Hong Leong Investment Bank Bhd (HLIB).
The research firm said trade wars are generally detrimental to the global economy.
“Imposing tariffs causes trade volume to decline as countries move away from globalisation and lean towards self-sufficiency. Trade links are also redrawn as countries switch from hostile trade partners to friendlier ones,” it said in a note.
When former US President Donald Trump implemented his barrage of tariffs on Chinese goods, HLIB noted that US imports from Malaysia grew at a 5-year compound annual growth rate of 7.7 per cent (2017 as a base) versus 1.2 per cent from China and 6.7 per cent from the world.
“Approved foreign investments into Malaysia saw a significant boost after the US-China trade war began; it swelled 3.5 times to RM188 billion in 2023 (2017: RM54 billion),” it explained.
From another perspective, from 2013 to 2017, the foreign composition of total approved investments was 26 per cent, rising to 59 per cent over the trade war period between 2018 and 2023.
These trends partially reflect Malaysia benefitting from the China+1 strategy where businesses avoid investing in China only, it said.
Last week, the US increased tariffs on US$18 billion of Chinese imports, with a potential impact on gloves as tariffs on medical and surgical rubber gloves imported from China rise to 25 per cent effective 2026 versus the current 7.5 per cent.
This appears positive for Malaysian glove makers, but the research firm believes Chinese glove makers will likely drop their pre-tariff pricing at the expense of profit margins to remain competitive.
“For the more immediate term until 2026, we reckon Chinese players will gradually shift their focus from the US to Europe and Asia, diverting US glove imports from China to Malaysia, it said.
Meanwhile, tariffs on semiconductors imported from China will rise to 50 per cent in 2025 versus 25 per cent.
The 2018-2019 first wave of tariff imposition led to capacity relocation, friend-shoring manufacturing with companies re-allocating production and sourcing away from unreliable, geopolitical rivals and diversifying of supply chain.
This latest tariff move should accelerate such trends. Nevertheless, China is the largest consumer of semiconductors, buying more than 50 per cent of chips manufactured globally, it said.
Source: Bernama
