An economist expects a negative impact on the economy while analysts at an investment bank see the possibility of a significant decline in exports, at least in the near term.
On the other hand, small businesses see opportunities amidst the challenges that the tariffs will bring.
Under an executive order signed by President Donald Trump, exports from Malaysia to the US will now be subjected to a 24% reciprocal tariff, making it one of 49 countries affected by the new policy.
Economic impact
Economist Barjoyai Bardai said the new tariffs could make the Malaysian economy less stable.
Referring to it as an “indirect” impact, he said this stems from the fact that market sentiment will turn negative.
“As we can see now, the Malaysian share market has taken a blow,” he told FMT Business.
Since news of the impending imposition of the reciprocal tariffs hit the headlines, the Bursa Malaysia FBM KLCI index has declined from 1,552.80 points on March 4 to 1,518.91 points yesterday for a 33.89-point drop.
The index opened at 1,517.30 points yesterday, nearly eight points down from the previous day’s close after the reciprocal tariffs were unveiled. The ringgit also saw a marginal decline yesterday, but Barjoyai said the situation could change in the medium term.
On the direct impact, he said businesses in the US will now be more likely to expect Malaysian exporters to bear some of the costs that stem from the higher tariffs by reducing their prices.
“Otherwise, they will look for suppliers from other countries where the reciprocal tariff is not as high as in Malaysia,” he said.
This, he said, will lead to a drop in the volume of business for Malaysian exporters, leading to a decline in profits.
“When business and profits decline, it will have a negative impact on the GDP. If there is a decline in business, manpower will have to be reduced, thereby affecting employment rate as well,” he added.
In the MIDF analysis, head of research Imran Yassin Yusof, head of strategy Syed Kifni Kamaruddin and chief economist Abdul Mui’zz Morhalim said the tariffs could lead to a 10% decline in Malaysian shipments to the US.
Given that the US market accounts for 13% of Malaysia’s total exports, this is significant, they pointed out. This, they said, could lead to a 1.3 percentage point (ppt) decline in Malaysia’s total exports.
If the tariff hikes also weaken demand from countries such as Singapore, Taiwan, South Korea, Vietnam, Japan and China, they said, it could lead to another 10% decline in shipments from Malaysia.
This, they said, could cause another 5.8ppt drop in overall exports.
They also adjusted their economic growth projection for the year to 3% from their existing baseline forecast of 4.6%. They said this year’s growth will mostly be sustained by domestic economic activities.
Impact on business
For Small and Medium (SME) Enterprises Association president Chin Chee Seong, the new tariffs offer an opportunity to renegotiate free trade agrements for better terms.
Chin told FMT Business it should also encourage businesses to reduce their reliance on the US and look for new markets elsewhere.
On the bright side, he said, Malaysia is not as badly hit as Vietnam and Indonesia where the reciprocal tariffs are as high as 46% and 32% respectively. “This gives local manufacturers in sectors such as electrical and electronics as well as rubber gloves an edge,” he said.
“For instance, at 24%, the tariffs on Malaysia-made gloves are still lower than that for China where it is 104%. This makes our products more competitive than those from China,” he added.
Chin said the furniture sector, which exports half of its products to the US, will benefit from an increase in costs in China, but the consumer electronics and gadgets sector will likely see higher costs.
He said Malaysian SMEs are already exploring alternative markets, including Asean, the Middle East, Africa, and India.
“Diversifying export markets, strengthening regional supply chains, and leveraging e-commerce are key strategies. Automation and digitalisation are also being adopted to cut costs and boost efficiency,” he added.
Harald Sippel, senior foreign advisor at corporate law firm Aqran Vijandran, said Malaysian companies will still feel the impact of the reciprocal tariffs even if they do not export directly to the US.
“If a Malaysian company sells to a UK firm, which then exports to the US with an additional 10% tariff, someone in the supply chain must absorb the cost,” he told FMT Business.
He said that while Malaysia holds a 16% global market share in semiconductor and electronics exports, US firms may rethink expansion plans in the country.
“After the US-China trade war and Covid-19, many US firms in China expanded into Malaysia. Now, they may retain operations in Penang but choose to grow their business in the US instead,” he added.
Tan Peck Leong, a professor of developmental economics at the Arshad Ayub Graduate Business School in Universiti Teknologi Mara (UiTM), said Malaysian exporters may not feel the full brunt of the tariffs yet because US companies cannot easily seek out new suppliers in countries such as Vietnam, Indonesia or Thailand given that they have also been hit with new tariffs.
“This gives Malaysian manufacturers a bit of breathing space for now,” he said.
But, in the long run, he said, US companies may start looking for cheaper alternatives for their components, even from domestic sources, to avoid relying on imports.
“If that happens, Malaysia risks losing its market share unless our companies adapt quickly,” he added.
To remain competitive, Tan said, Malaysian companies should focus on innovation, improving quality and offering more advanced or specialised products while exploring new markets.
“While the full impact of Trump’s tariffs may take time to be felt, one thing is clear: Malaysia cannot stand still. To thrive in a changing global trade environment, we must be agile, smart, and forward-looking,” he added.