Almost all major exporting economies were affected by the tariffs imposed by US President Donald Trump in April for “Liberation Day”. Malaysia has been no exception, benefiting from a 24% “reciprocal tariff” on its exports to the United States, which, while perhaps not as catastrophic as some of its neighbors, nevertheless poses a significant threat to the Southeast Asian economy.
However, the Malaysian government has responded in a more measured manner to the new American protectionism. Even as Prime Minister Anwar Ibrahim criticized Trump’s decision, he also refused to take retaliatory measures against the United States and tried to build a united response in Southeast Asia to Washington’s measures.
“When Liberation Day hit, we did not panic,” Amir Hamzah Azizan, Malaysia’s second finance minister and YB senator Datuk Seri, said at the Fortune Innovation Forum in Kuala Lumpur on Monday. “We didn’t go out there and say, ‘I’m going to reset my [growth] targets,” he said.
Instead, he suggested that Malaysia’s extensive trade ties with countries like Singapore, China and the United States helped it withstand shocks from any one country. “The Malaysian economy is very diversified,” he said, noting that no single market accounts for more than 30% of the country’s exports.
At the end of October, the United States agreed to reduce tariffs on Malaysian products to 19%, in exchange for the removal of non-tariff barriers on American products and better market access. The Southeast Asian country has also secured tariff exemptions for key exports like palm oil, rubber, aircraft parts, pharmaceuticals and other key exports. And while Malaysia’s tariffs remain higher than pre-Liberation levels, relatively higher tariffs on other economies like China could push supply chains to shift to the Southeast Asian country.
Balance the budget
Malaysia had a strong third quarter, with GDP growth of 5.2%, as well as a fiscal deficit of 3.8%, well below the 6.4% recorded during the COVID pandemic. Malaysia turned to fiscal stimulus during the crisis years to stabilize the economy and protect vulnerable populations, but Amir Hamzah called this level of spending unsustainable.
Instead, Malaysia must have both financial discipline and targeted investments whose benefits accrue to society, in an approach the Finance Minister called “raise the ceiling, raise the floor”. Malaysia has made tough decisions to balance its budget, including raising some taxes and cutting subsidies on diesel and fuel.
Nonetheless, Amir Hamzah noted that only the richest 15% of Malaysians reported an increase in their electricity bills, which he called part of the country’s energy transition.
“We have a clear direction on how we will move the economy towards greener energy,” said Amir Hamzah. This includes increased use of renewable energy such as solar and hydropower, as well as the importation of clean electricity through an expanded ASEAN power grid.
Malaysia will also encourage the country’s energy-intensive data centers to operate more efficiently and use less water, he said.
Amir Hamzah credited his business experience at major oil companies like Shell and Petronas for a data-driven approach to solving problems. “What I bring is the ability for us to actually look at the raw data. [and] start making decisions based on what we need to do,” he said.
Moving forward in the value chain
Malaysia is closely integrated with several global supply chains for advanced manufacturing, including semiconductors, aviation and automotive parts. The country has played this role since the 1970s, when Intel set up its first non-US chip factory in Penang.
“We are not at the top of the chain… so we do not represent a threat to the aspirations of the United States, which wants to bring a lot of things home,” explained Amir Hamzah. “What we do is [staying] in the middle…and increase the complexity of the economy, and as we do that, we strengthen the value chain.
Malaysia now aims to move up the value chain, with forays into chip design and advanced manufacturing. In March, the Malaysian government announced it would pay $250 million for some advanced chip designs from Arm Holdings, which local chip companies could use in their own designs.
In the long term, Amir Hamzah said Malaysia was a reliable partner for global businesses, especially those from the United States and China. “Our proposition to both is to say we are the key to your long-term supply chain,” he said. “We provide 80 million goods you need over the long term to support your growth. »
