PETALING JAYA: Pundits have cautioned that Malaysia could become an unlikely victim of a full-blown trade war between the United States and China, taking a contrasting viewpoint from Prime Minister Tun Dr Mahathir Mohamad, who believes it will benefit the local economy.
Worsening Sino-US trade tensions are expected to put more pressure on Malaysia’s already moderating gross domestic product (GDP) growth, which is a measure of economic performance.
The country’s external trade volume could also take a beating if the US imposes additional tariffs on up to US$550bil (RM2.3 trillion) imports from China, with the latter retaliating with a similar move.
Alliance Bank Malaysia Bhd chief economist Manokaran Mottain said Malaysia could fall into a recession within the next two years if the trade war goes full-blown next year.
A country is considered to be in recession if it records negative GDP growth for two consecutive quarters.
However, Manokaran was quick to point out that the trade war’s effects on Malaysia would likely be minimal for now, pending the conclusion of ongoing negotiations between the world’s two largest economies.
“A full-blown trade war between both countries could cause global trading volume and value to fall drastically. This will have bad implications on our economic growth, pulling it below the projected rate.
“Malaysia’s trade volume could also fall significantly by 10% to 20% next year if the trade war worsens, although still lower than what we have seen in the aftermath of the 2009 global financial crisis,” he said.
However, he believes the trade dispute would end through negotiations.
“At the end of the day, trade tariffs are bad for all businesses and economic growth in any country,” Manokaran said.
In a StarBiz report last month, Socio-Economic Research Centre executive director Lee Heng Guie said a full-blown trade war could pull the country’s GDP growth rate to below 4% next year.
“The tit-for-tat trade war among the major economies would inflict damage to the global economy and trade. Malaysia will be affected via the global supply and value chains though at this current state, the impact is manageable,” he said.
Malaysia is susceptible to any negative developments in the global trade scene as the country is one of the most trade-reliant economies globally.
In 2017, Malaysia’s exports of goods and services represented nearly 71.5% of its GDP.
On Sunday, Dr Mahathir said Malaysia was likely to benefit from the trade war between China and the US in terms of attracting foreign investors.
He said there was a possibility that investors would look to invest in countries that were not involved in the dispute, such as Malaysia.
Federation of Malaysian Manufacturers president Datuk Soh Thian Lai said the trade war, in general, was negative for any trading nation.
“We are a small trading nation and we are highly dependent on exports. We cannot afford to have our export revenue impacted by the trade war,” he said.