The trade conflict between the United States (US) and China will not only inhibit global trade and growth but also disrupt supply chains, impact businesses, jobs and consumers.
The negativity stemming from the trade war could also increase the cost of doing business, dampen investors’ confidence and heighten financial market volatility, says the Ministry of Finance (MOF) in its ''Economic Outlook 2019'' report presented in Parliament today.
Any development that takes place in these major trading partners would have both direct and indirect impact on the nation’s economic growth., said the report, adding that China has remained Malaysia’s largest trading partner for nine consecutive years, constituting 13.5 percent or RM126 billion of total exports in 2017.
The US, meanwhile, was the third largest export destination accounting for 9.5 percent or RM88.7 billion of Malaysia’s total exports.
The MOF also said the impact of tariffs directly imposed on Malaysia’s exports to the US namely solar panels, washing machines, steel and aluminium was relatively minimal and export of these products to that country accounted for 0.8 percent of total exports of RM7.3 billion in 2017.
However, exports which would be indirectly implicated - following the US$250 billion worth of Chinese products subjected to higher tariffs - accounted for about 12 per cent of Malaysia’s total exports of RM108 billion in 2017.
The bulk of the products encompassed electrical and electronics, particularly electronics, office machines, automatic data processing equipment, machinery and appliances.
Other products included crude oil and gas, metal ore and other mining goods, chemicals, plastics and rubber products.
The MOF added that almost 50 percent of Malaysia’s exports were incorporated into China’s final products, which were then exported to the US.
Based on this assumption, Malaysia's exports would likely decline by 0.08 percentage point while the Gross Domestic Product (GDP) by 0.02 percentage point over the period of 2018 – 2020.
If the trade war escalated and dragged down global output by 0.4 percentage point by 2020, the Malaysian economy could lose up to 0.7 percentage point.
This is based on an econometric analysis that indicated a 10 percent drop in global growth would reduce Malaysia’s GDP by 14 percent, added the ministry.
However, large trade gains could also be derived as both the US and China substituted its demand for imports from other emerging markets while multinational companies seeking to bypass these trade tariffs, could relocate.
Malaysia has developed strong trade network and diversified sectors over the years, which would enable domestic companies to navigate disruptions and seek new opportunities and alternatives.
Besides, the country was committed to engage and pursue trade initiatives, including through bilateral and multilateral agreements that would benefit Malaysian companies and entrepreneurs, added the report.
Among the Free Trade Agreements (FTAs) in the pipeline include the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CTPPA), ASEAN– Hong Kong FTA, Regional Comprehensive Economic Partnership Agreement (RCEP), Malaysia–European Free Trade Association Economic Partnership Agreement (MEEPA) and Malaysia – Iran Preferential Trade Agreement (MIPTA)
– Bernama
