KUALA LUMPUR: Malaysia still has an opportunity to engage in negotiations with the United States (US) to seek a reduction in the proposed tariff rate, with a 25-day window remaining before the August 1 implementation, said Hong Leong Investment Bank Bhd (HLIB).
In a note today, HLIB stated that although the short-term effects may weigh on Malaysia’s trade performance, this development could also act as a catalyst for increasing local value content in both foreign direct investment (FDI) and export-oriented industries.
It said the shift would align with Malaysia’s broader goal of increasing the value-added chain and deepening its industrial base.
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"At the same time, Malaysia has been actively strengthening trade ties with other countries to broaden its export base and reduce reliance on any single market.
"While rising protectionism presents downside risks to the economic outlook, Malaysia remains relatively resilient, approaching this period of uncertainty from a position of stability and diversification,” it said.
Malaysia’s overall trade exposure to the US is estimated at approximately 7.2 per cent of its gross domestic product (GDP).
HLIB said that with the introduction of a 25 per cent tariff, and assuming a demand elasticity ranging between 0.7 and 2.0, the potential drag on GDP could be between 0.5 and 1.5 percentage points.
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"However, given the limited timeframe for the implementation of new tariffs, elasticity may be dampened due to fewer available substitutes, which could moderate the initial impact,” it added.
Meanwhile, MIDF Amanah Investment Bank Bhd opined that Malaysia would likely reach an agreement with the US on a trade deal following the latest negotiation talks with the US trade representative last month.
"However, it is still uncertain about the level of tariff that will be agreed upon. Based on Vietnam’s latest trade agreement with the US, we expect the rate will be lower than the tariff set for August 1.
"We believe Malaysia can land around the 15 per cent level,” it said, adding that the latest development signal is that the US is willing to continue negotiating. - Bernama
