Malaysia will be hit if trade war intensifies
> Current impact of US-China dispute small but GDP could shrink should it drag on
KUALA LUMPUR: Malaysia’s gross domestic product (GDP) could contract by 1.3% in two years should the trade war between the United States and China intensify.
CIMB Group chief economist Dr Donald Hanna said Malaysia’s economic growth could shrink in the event of continuous escalation in tariff imposition and a confidence shock in the financial market, which could result from, say, China offloading its substantial holdings of US debt.
That will not only result in a reduction of global trade but will also affect Malaysia, which is an open economy – and trigger interest rate increases in the US.
However, at current levels, Hanna noted that the impact of the trade duel between the two economic giants on Malaysia is small.
He projected GDP growth to decelerate to around 5.1% in the second quarter (Q2) of 2018 from the 5.8% recorded in Q2 2017 – taking the cue from the slower growth in the Industrial Production Index for June, which rose only 1.1%
Full-year GDP growth is expected to be around 5.1-5.2%. This will be due to the natural moderation in GDP growth which started slowing down after a robust expansion in the second half of last year and not due to the US-China tensions.
Hanna said the trade war appears to be one of US President Donald Trump’s policies that could see some longevity, compared to others on issues such as immigration and abortion.
He noted that if Trump’s objective of waging a trade dispute is to shrink the US trade deficit, it is not likely to be achieved because of other macroeconomic policies that the US administration has in place.
Hanna, who was speaking at the 13th CIMB Asean Research Institute’s Asean Roundtable Series: Trade War and Its Impact on Asean, also said Malaysia could be a preferred location for US and Chinese companies to relocate their investments – in the face of tariff slapping.
Echoing that sentiment, European Union-Malaysia Chamber of Commerce and Industry CEO Roberto Benetello said China is likely to rethink its trade alliances in the region and get closer to partners in Asean.
This could be a call to accelerate the Regional Comprehensive Economic Partnership (RCEP), which could see a slowdown in the ratification process, thanks to the ongoing spat.
On the flipside, American Malaysian Chamber of Commerce executive director Siobhan M Das said without the US market, Asean could become a dumping ground for China’s excesses.
Malaysia Productivity Corp board member and former ambassador of Malaysia to the World Trade Organisation (WTO) Datuk Muhamad Noor Yacob said the focus should be on the WTO’s Dispute Settlement Body.
Although observers have voiced their concerns over the possibility of Trump pulling the US out of the WTO, the country has been one of its active users, accounting for more than 100 of the 500 disputes attended to by the body since 1995. It has also been an active respondent to many disputes.
The roundtable also saw speakers stressing on the importance of the RCEP and free trade agreements between the regional trading bloc and potential trading partners.