PETALING JAYA: And so it has happened.
US President Donald Trump’s “Liberation Day” has come and gone, and the sword of Damocles that has been hanging in the air since his return to the White House has fallen swiftly, including on Malaysia which has been slapped with a 24% reciprocal tariff.
This was part of a broad trade policy targeting countries with which the United States has the largest trade deficits.
The FBM KLCI, though, often the bellwether in Malaysia for sweeping developments such as this, showed a measure of resilience yesterday with a marginal 7.61-point drop to close at 1,518.91, although it is understood that the tariffs could have wider repercussions that are not limited to equity markets.
Similarly, regional markets declined with Singapore’s Straits Times Index, Shanghai’s SSE Composite Index and South Korea’s Kospi all retreating by less than 1%, while Hong Kong’s Hang Seng and Japan’s Nikkei 225 fell by 1.52% and 2.8% at their respective closes yesterday.
Meanwhile, gold prices continue to push to record highs, reaching a peak of US$3,167.57 per ounce overnight on April 2 along with the announcement of the tariffs, before pulling back to around US$3,128 at 5pm yesterday.
Experts from the economics and investment spheres were mixed on the significance of Trump’s latest move on Malaysia and its major trading partners.
The longer-term view was that since more than 180 countries were on Trump’s tariff list from April 2, the impact could be subdued once the knee-jerk reaction has blown over.
Nevertheless, Julia Goh, senior economist at UOB, believes that the tariffs imposed on Malaysia are within scenario expectations, guided by the trade balances and tariff gaps with the United States.
More importantly, she pointed out that the tariffs imposed on Malaysia is the third lowest in South-East Asia after the Philippines at 17% and Singapore at 10%, which is the baseline figure, before remarking that this may thus invite some diversion of fund flows to Malaysia.
However, she warned: “We will need to be cautious in allowing these flows that could further widen the trade deficit that the United States has with Malaysia.
“There would be downside risks to the growth outlook arising from the tariffs, but the extent will depend on the outcome of negotiations, potential retaliation from other countries, and possibility of further sector specific tariffs on semiconductors, pharmaceuticals, copper and lumber,” she told StarBiz.
The fresh tariffs are set to take effect from April 9, but given Trump’s proclivity to engineer deals, Goh observed that the final tariff outcome and implication will still hinge on the negotiation results between Malaysia and the United States, as well as proactive strategies by both the Malaysian government and businesses to navigate the trade restrictions.
She is, however, reviewing her gross domestic product (GDP) growth projection for Malaysia for 2025, which is currently pegged at 4.7%, given that her current view remains for sustained but slower global growth largely due to risk for a softer US economy due to the trade policies.
The good news for Malaysia, Goh believes, lies in the government’s preparedness to monitor the tariffs, as well as the country’s resilience and strengths that include seeking wider market access through several free trade agreements.
“For businesses, agility and flexibility in cost structure and business operating models are equally important for firms to navigate the risks. As countries are better prepared with expanded supply chains and stronger regionalisation, this may help Asean better cope with any trade fallout.
“The resolution of various geopolitical conflicts as Trump pushes for a ceasefire deal together with country-specific initiatives such as pro-growth policies in the United States and China, could also provide a fillip to global growth and trade amid accommodative monetary policy conditions. This can benefit Malaysia’s trade and investments over the short to medium term,” said Goh.
Similarly, Mercury Securities believes while the new tariffs may disrupt global trade flows, Malaysia faces comparatively limited direct impact.
“Malaysia, although included in the scope, is not a primary target of the most punitive US tariffs. Its tariff exposure is relatively moderate compared to larger economies like China, the European Union (EU), and even some Asean peers such as Vietnam and Thailand.
“This gives Malaysia a window of relative stability, though it does not shield the country from broader global trade spillovers,” the research unit noted.
It predicted, however, that high tariffs on China may reduce demand for Malaysian components integrated into Chinese exports, and they could also slow capital flows and technology exchange from the EU into Malaysia.
Mercury Securities listed a host of sectors that could be affected by Trump’s fresh tariffs, which included electrical and electronics (E&E), palm oil, rubber products, machinery and equipment, as well as textiles and apparel.
Meanwhile, glove stocks such as Top Glove Corp Bhd
, Hartalega Holdings Bhd, Supermax Corp Bhd and Kossan Rubber Industries Bhd have defied the tariff’s impact with all four posting strong showings yesterday, although how long the resilience will last remains to be seen.
Despite recognising that Malaysia’s direct exposure to Trump’s reciprocal tariffs is less severe compared to larger economies or even some Asean peers, Mercury Securities said second-order effects from trade slowdowns, supply chain shifts, and investment redirection could still significantly impact Malaysia’s economy.
“Malaysia’s relative insulation may offer short-term breathing room—but not immunity—from the broader challenges posed by a more protectionist global trading environment,” it warned.
HSBC head of Asia equity strategy Herald van der Linde said exporters tend to be most at risk when tariffs are raised, but many Asian economies, including Malaysia, now have much larger domestic economies than a decade ago.
In addition, he said it is important to remember that stock markets are not economies, and that the behaviour of markets depends on the outlook for the very firms that are listed on them.
“In the case of Malaysia, many of these are domestic-oriented firms, such as banks or consumer companies, which are less likely to be impacted by tariffs. We keep our end-2025 FBMKLCI target unchanged at 1,600 points,” said van der Linde.
Tradeview Capital chief investment officer Nixon Wong believes the impact of the tariffs on Malaysia would be less severe, and unlikely to affect the FBMKLCI significantly as most components on the premier index still skewed more towards domestic oriented demand, relying mostly on domestic economic growth driven by various local policies.
Going forward, Wong said there is certainly possibility for further negotiations to consider for Malaysia, such as lowering import taxes for US goods as a trade off to obtain concessions.
HSBC Asean economist Yun Liu concurred with Wong, citing Mexico as an example.
“There is also precedence, in the reprieve that was given to Mexico when trade negotiations took place. We will watch to see the outcome after Malaysia’s engagement efforts with the US,” Liu said.
Conversely, Asia Pacific economist at Coface Nouri Chatillon told StarBiz that concessions from Malaysia would have to be significant to convince the US to abandon tariffs in any further negotiations.
“Excessive trade concessions such as lower tariffs or non-trade barriers could still impact Malaysia’s exports through increased competition in the domestic market,” he said.
However, Liew pointed out that there is barely enough time to renegotiate meaningful exemptions or bilateral deals before the tariffs take effect given that affected countries are scrambling to secure preferential treatment, making it highly unlikely for Malaysia to secure a favourable deal within such a short timeframe.
As for gold prices, Wong and Liew think prices would remain bullish for the immediate term, buoyed by rising global uncertainty, escalating trade tensions, and investor risk aversion.
“As markets react to geopolitical instability and tighter trade restrictions, capital flows into traditionally stable assets, reinforcing upward price pressure on safe haven assets,” said Liew.
Wong anticipates the dollar to weaken as a slowdown in US growth is now on the cards, on top of a likely rate cut by the US Federal Reserve later in the year.
