BANGI - The United States’ (US) latest wave of reciprocal tariffs is landing hardest on Southeast Asian nations and the ripple effects could be economically destabilising.
Universiti Kebangsaan Malaysia, Malaysian Inclusive Development and Advancement Institute (Minda-UKM) director and economist Professor Tan Sri Dr Noor Azlan Ghazali said this was a development that deserved serious attention.
He said most of the countries affected by the recent wave of reciprocal tariffs by the US are Southeast Asian nations, with some being slapped with over 40 per cent rate.
While some may express concern about Malaysia’s direct trade exposure to the US, Azlan urged Malaysians to look at the bigger picture.
"While some may immediately worry about Malaysia’s trade with the US, I want to clarify that I am not too concerned on that front.
"Here is why: more than half of our exports to the US consist of electronics and machinery, industries that produce highly complex, high-quality products.
"These sophisticated goods are not easily replaceable and because of their complexity, they are often exempt from reciprocal tariffs," he said during the "Tarif Trump: Kesan dan Langkah Malaysia" programme at UKM, yesterday.
However, he warned that the real danger lies in the indirect consequences of the tariffs, especially in Malaysia’s regional export markets.
He said what really worried him went beyond the surface, it was something many Malaysians might not fully see or understand.
"We hear about Malaysia’s economic growth like the 5.1 per cent recorded last year, 4.5 per cent this year, or even seven per cent in previous years. What underpins these figures? The answer is demand, the extent to which people, both at home and abroad are spending on Malaysian goods and services.
"This demand has two sources, domestic and international. Domestically, spending comes from households, firms and the government. But here is the key issue. Despite claims that our domestic economy is strong, the numbers tell a different story.
"Let us say the total domestic expenditure is around RM1.4 trillion. Out of this, nearly RM1 trillion goes towards imports. Spending on imports does not contribute to our gross domestic product (GDP) growth, because that money flows out of the country. For example, buying imported apples does not grow Malaysia’s economy.
"When you subtract the RM1 trillion spent on imports, you are left with just RM400 billion of impactful domestic spending which is barely enough to support sustained growth," he added.
He said Malaysia’s economic health was tightly linked to the global economy, especially Asian demand.
He said when global demand slows down, Malaysia is inevitably affected regardless of what is happening with the US.
While Malaysia only sends 11 per cent of its exports to the US, a staggering 64 per cent go to other Asian countries.
"The challenge is that many of these Asian nations, who make up the bulk of our export market, are now under pressure from US-led reciprocal tariffs," he said.
Countries like Laos, Vietnam and Myanmar, he said were facing steep tariff hikes, exceeding 40 per cent.
He said even within Asean, Malaysia’s average tariff rate to the US (24 per cent) is higher than that of Singapore (10 per cent) and the Philippines (17 per cent).
"What worries me is the potential ripple effect. If these trade tensions escalate into a full-blown trade war, countries that have long been reliable buyers of our goods may be forced to cut back.
"They might say, ‘Sorry, we cannot afford to buy anymore,’ and that could severely affect our export-driven growth.
"I checked the stock market this morning and the signs are not good. What began as a trade issue could quickly escalate into a financial crisis and unlike trade disruptions, financial crises spread rapidly. This is not something to be taken lightly," he added.