Deficit risk with US even at 10% tariff

PETALING JAYA: Malaysia risks losing over RM167bil in export value to the United States this year should the 10% import tariff on Malaysian products be maintained throughout 2025.

This would push Malaysia into a trade deficit of RM88.2bil with the United States, a stark deterioration from a trade surplus of over RM72bil in 2024, said Centre for Future Studies chief economist Mohd Yusof Saari.

The estimate is based on the assumption that Malaysia chooses not to impose reciprocal tariffs on the United States, its third largest trading partner since 2015.

It also does not account for the indirect effects along the global supply chain that Malaysia may face due to the imposition of US reciprocal tariffs on other major trading partners such as China and the European Union.

“The tariff hike by the United States raises the cost of Malaysian goods, making them less competitive compared to domestic suppliers or other foreign competitors.

“This leads to a decline in demand from US buyers, thereby reducing Malaysia’s exports to the United States. The contraction in Malaysia’s export value to the United States is expected to reduce gross domestic product generation by RM29.3bil.

“Consequently, employment creation is projected to decline by 240,000 jobs, while salaries and wages, as well as indirect tax revenue, are estimated to fall by RM9.6bil and RM500mil, respectively,” Mohd Yusof told StarBiz.

Earlier, Malaysia was slapped with a 24% reciprocal import tariff by the United States, effective April 9. However, within hours since the tariff took effect, President Donald Trump made a surprise U-turn and announced a 10% tariff for 90 days for more than 75 countries that have been willing to negotiate with the United States.

Negotiations during the 90-day pause will decide whether tariffs on Malaysia would be lifted, maintained at 24% or reduced.

The outcome is subject to Malaysia’s willingness to reduce or eliminate tariffs and non-tariff barriers, benefitting US businesses.

In an earlier report, the Centre for Future Studies estimated that a 24% tariff would potentially reduce Malaysia’s export value to the United States by RM187.6bil in 2025.

Under such circumstances, Malaysia could suffer a trade deficit of RM108.5bil with the United States.

With the new higher tariff environment still in early stages amid persisting uncertainties, the real impact on Malaysian trade performance may not be visible anytime soon.

Carmelo Ferlito, the chief executive officer of the Center for Market Education, said there is a time gap between the announcement of a policy and its effects.

“So, we won’t see immediate effects in the next trade figures. Export that is happening today is export which has been agreed between commercial parts months ago, and therefore, the actual effects will only manifest themselves toward the last part of the year.

“To evaluate the global impact on an export, which was already growing at a slower pace than import for the past three years, is a bit too early,” said Ferlito.

Meanwhile, Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said that Malaysia’s trade performance this year may not be as strong as previously expected.

“There is a positive relationship between the business sentiments in the United States and the degree of Malaysia’s exports growth. The correlation between the US ISM Index for the manufacturing sector and Malaysia’s export growth is at 56% and such index tend to lead about one to two months ahead of Malaysia’s exports growth.

“On that note, the prevailing forecast would need to be revised downwards.”

Commenting on the outlook of the domestic manufacturers, Mohd Afzanizam said they might receive lower orders going forward as the cost for importing from Malaysia will go up in tandem with the reciprocal tariff.

“However, the pause would provide some breathing space and hopefully the Malaysian government would be able to get some concessions with the US government through trade negotiations,” he added.

Mohd Yusof also cautioned that a weakened export performance will inevitably spill over to domestic-oriented sectors, given their role as essential input providers to export-driven industries.