Malaysia will be one of the most vulnerable Asian economies for the possibility of intensified US tariffs on China if Donald Trump is re-elected as president, said OCBC Global Market Research.
The firm said Malaysia’s share of exports to the US were higher than China from January to August 2024.
“This suggests rising sensitivities to potential tariffs from the US,” it said in a note.
The Asean-6 region namely Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam, has significantly benefited from the “China +1” strategies adopted following the imposition of tariffs in 2018, during the previous Trump presidency.
OCBC said this makes these economies targets should Trump follow through on his election promises of higher tariffs on all US trading partners.
“Specifically, former president Trump has said that he will consider a blanket tariff of 10-20 per cent on almost all imports into the US, with tariffs of 60 per cent on Chinese imports,” it said.
OCBC described three potential scenarios for tariffs imposition. Its approach is simplistic and assumes a one-time shock.
Firstly, under scenario 1, the firm assumes a 60 per cent tariff is imposed on China’s exports to the US.
Under scenarios 2 and 3, OCBC said tariffs are imposed on all trading partners including Asean along with 60 per cent tariffs on China’s exports to the US.
“Under scenario 2, we assume a tariff of 10 per cent is imposed on all US trading partners including the Asean countries along with a tariff of 60 per cent on China’s exports to the US.
“Under scenario 3, a 20 per cent tariff is imposed on US trading partners, along with a tariff of 60 per cent on China’s exports to the USA,” it said.
While OCBC had argued that Malaysia has a well-diversified export base in terms of trading partners and products, tariffs could shave off up to 0.9 percentage point (pp) off its baseline under scenario 2 and as much as 1.5pp under scenario 3.”
It expects Malaysia’s growth to only be modestly impacted by 0.2pp under scenario 1.
“Higher tariffs on China alone will impact Malaysia via slower demand from China but there is a clear offset in terms of rising investments and further acceleration of ‘China +1’ policies,” it added.