THE tariff war is far from over, and for Malaysia, negotiating a fair deal with Washington will not be a walk in the park.
For the next 90 days or so, instead of the 24 per cent reciprocal tariff which has now been paused, Malaysian products shipped into the United States will face a 10 per cent tariff.
Even at a 10 per cent tariff, the impact on Malaysian exports is significant.
Malaysia risks losing over RM167 bln in export value to the United States (US) this year should the 10 per cent import tariff on Malaysian products be maintained throughout this year.
This would push Malaysia into a trade deficit of RM88.2 bln with the US, a stark deterioration from a trade surplus of over RM72 bln in 2024.
The estimate is based on the assumption that Malaysia chooses not to impose reciprocal tariffs on the US, its third largest trading partner since 2015.
It also does not account for the indirect effects along the global supply chain that Malaysia may face due to the imposition of US reciprocal tariffs on other major trading partners such as China and the European Union (EU).
The tariff hike by the US raises the cost of Malaysian goods, making them less competitive compared to domestic suppliers or other foreign competitors.
This leads to a decline in demand from American buyers, thereby reducing Malaysia’s exports to the US.
The contraction in Malaysia’s export value to the US is expected to reduce gross domestic product generation by RM29.3 bln.
Consequently, employment creation is projected to decline by 240,000 jobs, while salaries and wages, as well as indirect tax revenue, are estimated to fall by RM9.6 bln and RM500 mln, respectively.
In a separate briefing to US Treasury Department deputy assistant secretary for Asia Robert Kaproth last week, I shared preliminary calculations indicating that a 24 per cent tariff would potentially reduce Malaysia’s export value to the US by RM187.6 bln in 2025.
Under such circumstances, Malaysia could suffer a trade deficit of RM108.5 bln with the US.
Local manufacturing activities across affected sectors will witness a slowdown, with new job creations affected, although no substantial job losses are expected.
I’ve elaborated on these implications in “Still betting on minimal impact” (April 9) and “24 pct tariff? That’s just round one” (April 6).
In a worst case scenario – assuming the 24 per cent tariff is re-imposed after the 90-day period – there will be a bigger toll on the economy, including on private investments that may be delayed or re-routed out of Malaysia.
In the coming weeks, Investment, Trade and Industry Minister Tengku Datuk Seri Zafrul Abdul Aziz and his team will have a tough time trying to bring the tariff down.
They won’t be walking into a soft room.
Across the table sits US Treasury Secretary Scott Bessent — a seasoned hedge fund manager with a sharp macroeconomic view and a protégé of liberal billionaire George Soros.
Zafrul will need a live wire strategy desk staffed with people capable of stress-testing scenarios on the spot.
Every number, every pitch, every counter has to land in real time.
The toughest part of negotiating a deal with the United States is not about lowering Malaysia’s import tariffs on American products.
In fact, Malaysia’s average tariff on US products is already low at about 5.6 per cent.
Hence, there is not much room to slash tariffs on the Malaysian side.
With little left to offer, the country must prepare itself to make other concessions, particularly on the non-tariff barriers (NTBs).
This will be the toughest part of the deal.
NTBs are measures other than tariffs imposed to restrict imports or exports of goods and services.
Examples include licences, quotas, embargoes, special regulations and foreign-exchange restrictions.
In Malaysia’s case, the preferential policy favouring Bumiputera vendors is also an NTB.
Others include halal standards, auto imports, price control and sector-specific affirmative action.
There are also other barriers such as preferred vendor schemes for government-linked companies, subsidies for local suppliers, foreign worker recruitment, sectors restricted to local companies, monopolies and cartels.
By now, it is obvious that the NTBs will play a crucial role in the trade negotiations.
When Vietnam offered to eliminate tariffs on American imports, White House trade adviser Peter Navarro said it was not good enough.
“Let’s take Vietnam. When they come to us and say ‘we’ll go to zero tariffs,’ that means nothing to us because it’s the non-tariff cheating that matters,” Navarro said.
In upcoming negotiations with the US, Malaysian negotiators will likely face pressure to address NTBs, with the Bumiputera policy high on the list.
This puts Malaysia in a delicate position.
The NTBs are in place to protect Malaysia’s economic sovereignty and politically favoured constituencies.
A sudden removal favouring just one trading partner will also lead to other countries requesting the same privilege.
Does Malaysia have a coordinated plan to offer adjustments of NTBs that will be acceptable to the President Donald Trump administration?
A fellow presenter — formerly the chairman of a leading domestic bank — confided that, politically, it may be near-impossible to unwind entrenched policies such as the approved permit system for imported vehicles, including those from the US.
Acknowledging these structural constraints, I argued in “Yield shock forces tariff reversal” (April 13) that Malaysia should consider placing alternative incentives on the table, rather than attempting the politically costly removal of certain NTBs.
This includes the possibility of buying more made-in-the-US civilian planes and military equipment from American companies.
NTBs are always the most difficult to negotiate and this has been a problem in other cases such as the European Union-Malaysia free trade agreement.
On tariffs, of course a reduction or removal will cut government revenue.
US imports to Malaysia last year were RM126.3 bln and so a tariff of 5.6 per cent amounts to RM7 bln.
Lowering tariffs affects revenue but can also increase trade and there are revenue collection options from higher import sales through sales and services tax and higher profits from importing companies.
In the long-term, lower trade barriers increase trade and there are net benefits to all trading partners.
At this point, the 90-day pause announced by Trump has, to a large extent, eased the panic in the market.
Malaysia, however, cannot afford to delay the negotiations and must move fast to resolve the issue.
I’ve had several trade officials approach me and colleagues for advice on how best to engage with Bessent.
My answer was blunt: it cannot be a one-off transactional pitch.
The US, particularly under the current administration, is not moved by white papers or working groups. It responds to decisive action and to individuals who can command the room.
That’s because many of the key players in Trump’s orbit aren’t career politicians.
They’re capitalists.
Investment bankers.
Dealmaking operators who view international relations through the lens of transactions, not treaties.
Even Trump himself, a billionaire developer, approaches trade as leverage, not diplomacy.
Leverage is effective only when backed by conviction, precision and a credible ability to execute.
Otherwise, you risk what happened to Ukraine’s President Volodymyr Zelensky — publicly humiliated, summarily dismissed from the White House last month after failing to meet expectations in a closed-door bilateral.
Malaysia cannot afford such missteps. Not now.
Currently, Malaysia does not have an ambassador to the US since Datuk Seri Mohamed Nazri Aziz’s two-year term ended earlier this year.
As conveyed to me by a senior figure within the US Embassy, it may take three to four months before our ambassador can be confirmed through the US confirmation process in the US Senate.
This means our ambassador to the US may only be able to officially represent Malaysia sometime in July or August, which is too close to the ASEAN summit to really make a difference this year when we are the chair of ASEAN.
At the end of this year, we may also have a new Investment, Trade and Industry minister who will have to learn the issues and get to know the personalities involved in these trade tariffs.
Because of this, we may lose further momentum in terms of coming up with a negotiated package acceptable to the Trump administration.
(Tengku Zafrul’s second term as senator ends in December this year and he can no longer be a minister, unless he gets elected to Parliament in a by-election.)
If Malaysia is able to move fast and put together a package which the United States finds acceptable, the disruptions to the Malaysian economy will be limited to a few sectors of the economy.
It would also have a far less negative impact on the economy compared to the broad base tariffs which are being charged against Malaysia.
If the Trump tariffs are introduced to the semiconductor sector, as it likely will be, then the urgency to put forward a deal becomes even more urgent for Malaysia.
With more than 75 countries choosing to negotiate with the United States rather than retaliating like China, I foresee a much better global outcome with lower trade barriers for everyone.
In this sense, the Trump tariffs may have made a bigger positive impact on world trade in one week than the General Agreement on Tariffs and Trade as well as the World Trade Organisation (WTO) have made in 78 years.
If the issues are settled quickly, then foreign direct investment approvals should not be affected much.
Medecci Lineil leads a specialised quant team within Goldman Sachs’ investment banking division. He’s also a founding board member of consultancy firms in Kuala Lumpur and Singapore. Reach him at med.akilis@gmail.com.
