US Tariffs Expected To Have Direct Impact On Malaysia's GDP -- Tengku Zafrul

KUALA LUMPUR, April 7 (Bernama) -- The implementation of tariffs by the United States (US) is expected to have a direct impact on Malaysia’s gross domestic product (GDP), thus presenting challenges to the country's economic growth for this year and possibly for years to come.

Minister of Investment, Trade, and Industry Tengku Datuk Seri Zafrul Abdul Aziz said that as one of the largest trading partners of the US in ASEAN, as well as a major destination for foreign investments from the US, Malaysia is likely to feel the impact of these tariffs in the medium to long term.

“This impact is expected to be widespread because tariffs are also being imposed on nearly every trade partner and source of investment for Malaysia. If more countries impose retaliatory tariffs, a global-scale trade war could break out, which would undermine global economic growth,” he said in a press conference regarding the US tariffs here, today.

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Tengku Zafrul said that the government has already announced that the GDP growth forecast for 2025, at 4.5 per cent to 5.5 per cent, will be reviewed based on a more comprehensive assessment report on the impact of the US tariffs.

“For now, the government expects economic growth to continue. Our household spending remains resilient; domestic investments are strong; tourism revenues are solid, and national master plans are being implemented. InshaAllah, our strong economic fundamentals and the government’s preparedness will enable us to weather these challenges with strength,” he said.

However, Tengku Zafrul noted that despite the negative impact, there are some direct and indirect effects that can be leveraged.

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"Among them, several Malaysian exports are expected to become more competitive in the global market compared to other countries subjected to higher US tariffs. The tariff rate on Malaysia at 24 per cent is seen as more moderate compared to Cambodia (49 per cent), Indonesia (32 per cent), Laos (48 per cent), Myanmar (45 per cent), Thailand (37 per cent), Vietnam (46 per cent), and China (34 per cent),” he added.

He said that many analysts believe this makes Malaysia more attractive to importers and US companies seeking inputs or intermediate goods.

Tengku Zafrul also explained that the substitution effect is expected to benefit commodities such as palm oil, wherein Malaysia’s palm oil exports have the potential to become more competitive, not only compared to competitor countries but also because demand may shift to Malaysia.

However, he did not dismiss the possibility that negative direct impacts await, particularly in terms of reduced demand.

"When this happens, revenues will decrease, and employment in the export sector will be affected. When demand decreases, investments and expenditures will also drop. All of these factors will result in a decline in Malaysia’s GDP. If many countries face the same situation, global growth will slow down," he added.

He pointed out that the decrease in demand from the US due to retaliatory tariffs could also result in local industries and markets facing a glut of imports from other countries with excess capacity, which would increase competition with local producers.

Commenting on investors’ reactions to this development, he informed that most domestic and foreign investors believe it is still too early to assess the impact on their operations until the tariffs are implemented on April 9.

"Some investors expect supply chain disruptions, especially involving manufacturing contracts, and there are also Malaysian investors slowing down their business expansion plans, and start adopting thrifty measures, while focusing on market expansion in China, India, and ASEAN," he said.

-- BERNAMA