New wrinkle in tariff war

JUST when we thought the US tariff issues were subsiding, a new set of worries is surfacing.

This week, the Office of the United States Trade Representative (USTR) initiated investigations into several economies, including Malaysia, over excess capacity and production in certain manufacturing sectors.

The probe will examine whether the acts, policies, and practices of these economies contribute to excess production that could burden or restrict US commerce.

Aside from Malaysia, the United States is also investigating China, the European Union, Singapore, Indonesia, Thailand, Vietnam, and others.

The United States says these key trading partners have developed “production capacity untethered from the incentives of domestic and global demand”, which it claims leads to overproduction, persistent trade surpluses, and unused manufacturing capacity.

The USTR opines that Malaysia maintains a global goods trade surplus, led by exports in sectors such as electronic equipment, mineral fuels and oils, machinery, animal and vegetable fats and oils, as well as optical, photographic, technical, and medical apparatus.

It also highlights significant excess capacity in Malaysia’s steel sector.

These are key manufacturing sectors that now risk being targeted with new tariffs.

The development comes after earlier US tariffs introduced under Section 301 were struck down by the US Supreme Court, which ruled the measures exceeded the authority granted under existing trade laws.

The US government is now using trade investigations to rebuild tariff tools against foreign imports.

Tariffs could raise costs for Malaysian exports like steel and electronics.

Semiconductor firms, for example, might face higher production costs passed on to buyers, though US multinationals (which account for the bulk of exports from Malaysia) could seek exemptions.