The push for domestic demand

MANY governments around the world are looking to boost domestic demand as a way to buffer the negative effects of the US’ new tariffs.

Will it work?

Take the case of Malaysia, where a new 24% tariff will be imposed.

This will significantly hurt our export revenues. Let’s look at some numbers.

Last year, Malaysia exported some RM200bil worth of goods to the United States.

If we assume the new tariffs cause that number to shrink by half, then we have a RM100bil shortfall.

Can the domestic market step in to plug this gap? It’s hard to imagine.

Even more so, economists are now pointing out the fact that a drop in exports will have a trickle-down effect of dampening domestic demand.

After all, contractions in domestic demand were felt (in many countries, including Malaysia) after the global financial crisis and the more recent Covid-19 pandemic.

It also seems that Malaysia is sticking to its subsidy rationalisation plans, which could once again put pressure on domestic demand.

It will be interesting to see if using domestic demand to soften the blow will work in China.

The authorities there are set on boosting their domestic demand through a combination of policy measures and stimulus programmes, which began last year.

This includes a mix of monetary easing and fiscal measures.

For example, the government has issued more than US$40bil in special treasury bonds to provide subsidies directly to consumers.

It is also expanding domestic tourism by developing winter travel hubs and easing visa regulations.

There are also fiscal and monetary policies aimed at supporting manufacturing technology upgrades, green technologies and the digital economy.

These initiatives indirectly stimulate domestic demand through job creation and income growth.

However, a programme offering the public the chance to trade in used appliances for new ones at a discounted price didn’t quite pan out.

This could possibly indicate a reluctance to spend amid uncertain economic times.