Talks with US on tariffs reveal trade vulnerabilities

DURING a press conference in Parliament on Monday, Investment, Trade and Industry Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz shared that Washington has stipulated several demands before considering a reduction in the 24% tariffs on imports from Malaysia.

These are decreasing the trade imbalance, alleviating non-tariff barriers, enhancing technical safeguards and augmenting strategic investment in the United States.

In theory, they may appear as technical discussions among trade ministries. However, each reflects something deeper – structural dependencies, misaligned incentives and the growing expectation that economic access must be “earned”, not assumed.

Consider the trade deficit. The United States claims a US$25bil trade deficit with Malaysia, indicating that it imports more from Malaysia than it exports to us. In the current political context, deficits are increasingly perceived not as a result of comparative advantage but as issues to be “rectified”.

Consequently, we may be compelled to increase imports of US goods regardless of their cost-competitiveness merely to balance the accounts.

Additionally, there exists the concern of non-tariff obstacles. An example mentioned was the laborious procedure of halal certification. This may appear to be a minor regulatory concern, but it underscores a vital point: In international trade, the impression of friction is as significant as the real regulation.

Although Malaysia justifiably upholds its regulatory requirements, if our processes are regarded as opaque, inconsistent, or sluggish, they become a valid point of leverage for trading partners. This is a challenge to business competitiveness.

The call for “technology safeguards” is even more illuminating. The United States seeks guarantees that sensitive technologies, especially semiconductor components, will not be redirected to nations subject to its export prohibitions.

This indicates that Malaysia is perceived as a potential transshipment risk, and should stimulate profound reflection for a nation aspiring to establish itself as a semiconductor hub.

The demand for strategic investment is perhaps the most ironic. According to Tengku Zafrul, government-linked corporations and investment firms have already invested approximately US$45bil in US bond and equity markets. The communication is unequivocal: Passive capital is insufficient. Investment must now be purposeful, strategically focused, aligned, and demonstrably helpful of local economies.

So, where does this leave us?

First, we must dispel the misconception that global trade is exclusively regulated by economic principles. Trade access is now increasingly influenced by political perceptions, industrial strategy and national security considerations.

A new reality has emerged where tariffs, limitations and conditions are used strategically – not for punishment but for realignment.

Second, Malaysia must contemplate the implications of a reactive approach. Our over-dependence on a limited range of export markets and sectors renders us vulnerable.

Our regulatory regimes, albeit justified domestically, may not consistently endure international examination. Our story as a neutral, rules-based trading nation will remain valid only if we consistently exhibit transparency, responsibility, and competence across all economic levels.

Third, and most crucially, the average Malaysian must recognise trade not as an abstract issue for the elite but as one that directly impacts their livelihoods. Tariffs influence prices, employment, investments, and prospective opportunities. Should corporations have elevated export expenses, they may reduce expenditures in other areas.

If international partners perceive Malaysia as a compliance concern, they may relocate operations to alternative markets.

As Tengku Zafrul said, Malaysia aims towards zero-rated tariffs rather than just a reduction. This is a commendable and essential objective, but attaining it will need more than kind diplomacy. It necessitates self-evaluation, organisational restructuring, and strategy realignment.

Ultimately, this moment is not just about negotiating a better deal with the US; it’s about rebuilding our credibility, re-calibrating our strategy, and reminding ourselves that in today’s global economy, sovereignty is exercised not just through borders but also through standards, systems, and trust.

GALVIN LEE KUAN SIAN

School of Diploma & Professional Studies

Taylor’s College