Courtroom tariff wars: Time for Malaysia to build a tariff-proof economy — Yap Wen Min

Malay Mail31-05-2025

MAY 31 — On 29 May 2025, a US appeals court temporarily brought back President Trump's sweeping 'Liberation Day' tariffs, just one day after a trade court ruled them illegal. It was a reminder that recent shifts in US trade policy today are shaped not just by economic logic but by political swings — and even the courts now play a role in moderating that balance. For global partners like Malaysia, that means preparing for a world where trade rules are constantly doubted.
According to BNM's Monetary Policy Statement (8 May 2025), the tariff measures announced by the US, along with retaliatory actions, have weakened the outlook on global growth and trade. The central bank also highlighted that the balance of risks to Malaysia's growth outlook is tilted to the downside, with references to external factors such as trade tensions and geopolitical uncertainties.
Malaysia is among the countries subjected to these elevated tariffs, with a 24 per cent tariff on its exports to the US, justified by Washington as a response to trade imbalances — but applied without consultation. According to the Malaysia External Trade Development Corporation (MATRADE), the rationale behind Malaysia's 24 per cent tariff was based on the US administration's calculation of trade imbalances.
In a Presidential Memorandum issued on 2 April 2025, President Donald Trump declared that under the International Emergency Economic Powers Act (IEEPA), large and persistent US goods trade deficits are a threat to national security. The memorandum also stated that its large trade deficits were mainly due to lack of reciprocity in bilateral trade relationships, disparate tariff rates, non-tariff barriers, and economic policies of key trading partners that suppress domestic wages and consumption.
The tariffs, which targeted imports from most US trading partners including Malaysia, were introduced under the rationale of correcting 'unfair trade imbalances' (The White House, 2025). Earlier, in February 2025, Trump's administration had separately imposed additional tariffs on China, Mexico, and Canada for enabling the fentanyl crisis. This earlier line of tariffs adds another layer of complexity to the broader trade picture leading into the April 'Liberation Day' announcement.
Even if the method of setting 24 per cent for Malaysia may look rational on paper, the way it was applied outside multilateral frameworks and without prior consultation makes it part of a larger erosion of predictable, rules-based trade. Indeed, it has already created ripple effects across supply chains and investment flows. A report by Fitch Ratings also highlighted that these tariffs could lead to increased costs and operational challenges for companies reliant on cross-border trade.
In response to these challenges, Malaysia has sought to deepen its economic ties with other partners. Notably, during a state visit by Chinese President Xi Jinping to Kuala Lumpur in April 2025, Malaysia and China signed over 30 bilateral cooperation agreements aimed at enhancing trade and investment relations. These agreements are part of Malaysia's strategy to diversify its trade partnerships and mitigate the impact of US tariffs.
At the Asean summit in Kuala Lumpur on 27 May 2025, Southeast Asian leaders reached a consensus that any bilateral trade agreements with the United States regarding tariffs should not negatively impact other member nations. Prime Minister Anwar Ibrahim, serving as ASEAN Chair, emphasized the importance of this unified stance to protect the region's collective economic interests amid global market volatility and the imposition of US-led tariffs that could impose duties ranging from 32 per cent to 49 per cent on six Asean countries. He also announced efforts to engage US President Trump directly to discuss these measures.
Trucks drive past containers at the Port of Ningbo-Zhoushan in Ningbo, in China's eastern Zhejiang Province on May 28, 2025. — AFP pic
We are entering a period where the rules of global trade are increasingly subject to reinterpretation. Legal challenges, geopolitical shifts, and executive orders constantly reshape what used to be predictable. For Malaysia, reacting case-by-case to new tariffs is no longer enough. In this uncertain climate, what's needed now is a structural, forward-looking strategy to insulate the economy from tariff shocks — positioning Malaysia not just as a victim of trade volatility but as a resilient and indispensable player in global supply chains.
By 'tariff-proof', it implies making the economy resilient — able to withstand sudden tariff shocks without stopping growth or investment. Our strategy must tariff-proof the economy by diversifying risk and deepening competitiveness.
Reshore and diversify supply chains
Malaysia should scale up efforts to attract high-value manufacturing, especially in electronics and semiconductors, by capitalising on the global 'China +1' shift. Multinationals are already looking for alternatives outside China, and Malaysia is the front-runner in Southeast Asia for that trend.
Leading global technology companies, including Microsoft, Google, and Oracle, have made substantial investments in Malaysia, reinforcing the country's position as a pivotal hub in the global semiconductor and digital infrastructure sector. The government can speed this up by offering targeted incentives like tax breaks, upgraded infrastructure, and workforce training to attract factories and R&D centres in strategic sectors.
At the same time, developing more domestic capacity for key components — or sourcing them from trusted trade partners — would help buffer the impact if US tariffs or Chinese export controls disrupt critical supplies.
Expand export support and insurance
Even with diversification, Malaysian exporters will face new trade risks. The government should enhance trade finance and risk mitigation tools so that firms can weather tariff shocks.
While Malaysia already provides export credit guarantees and market development grants, these should be boosted and made more flexible. It is also crucial to streamline export credit insurance, raise funding caps on trade missions, and help SMEs adapt products for new markets (e.g., halal certification, digital marketing) as recommended by the Federation of Malaysian Manufacturers.
Such measures make Malaysian exports tariff-resilient by lowering the cost of finding and developing non-US buyers or adapting to changing rules.
Position Malaysia as a trusted, neutral hub
Geopolitically, Malaysia's strength lies in neutrality and multilateralism. As the chair of Asean, Malaysia has led calls for trade deals that don't harm neighbours, and this should be translated into concrete policy.
For example, the government can work with Asean partners to create a formal Supply Chain Coordination Council. Regional coordination — such as pooled risk-sharing or regional sourcing strategies — can protect Asean economies from the impact of unilateral trade actions.
On the home front, Malaysia should continue improving the ease of doing business with trade-friendly customs and financing. We should also promote our currency and banking as alternatives for regional trade settlement to ease heavy reliance on any one superpower's currency.
In the US, our diplomat tells Washington that Malaysia is an ally with secure markets and reliable suppliers. We should similarly cultivate ties with China and Europe, offering to host assembly of goods that neither power wants to fully onshore. By actively marketing Malaysia as a stable bridge, we turn uncertainty into opportunity.
None of these steps will be easy, but other countries are already moving in similar directions. In short, Malaysia must make its economy tariff-proof — by reshoring key supply lines, expanding export credit and insurance, steering investment into future-ready industries, and leveraging our neutral stance.
By doing so, we show investors worldwide that Malaysia is a safe harbour amid trade turbulence.
* This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.

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