What would Trump’s proposed tariffs mean for Malaysia’s trade and economy? Yin Shao Loong, Deputy Director of Research at Khazanah Research Institute, breaks down the potential impact and strategic considerations for the country.
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00:00Sari kata-kata, mari kita berbicara sedikit lagi mengenai pembicaraan anda daripada Xi Jinping
00:13Terutamanya selepas kedua pemimpin, Pemimpin Ano Ibrahim dan Xi Jinping
00:18memberikan bahasa yang saya katakan sangat luar biasa.
00:22Mereka menggunakan termasuk kawan-kawan seperti
00:25kawan-kawan, kawan-kawan yang selanjutnya, bukan 50 tahun pemimpinan antara Malaysia dan China
00:33tetapi lebih dari 1,000 tahun pemimpinan yang berbincang dengan satu-satunya
00:37bagaimana yang terbaik untuk membuat bahagian dunia ini.
00:39Adakah anda melihat berbicaraan ini sebagai berjanji?
00:45Orang lebih penting, optimistik dengan apa yang akan menjadi
00:50selama 3-5 tahun sebelumnya?
00:54Saya rasa kita harus mengenai bahawa China adalah
00:58yang keuntungan di dalam bahagian belakang.
01:00Orang lain, kita di dalam bahagian belakang belakang.
01:04The US adalah keuntungan lain, tetapi di dalam bahagian belakang belakang.
01:07Dan kita berkaitan dengan berkaitan dengan berkaitan.
01:10Tapi China juga memberikan bahagian belakang bahawa Malaysia
01:14adalah pertama negara dalam ASEAN untuk membuka diperlukan diperlukan
01:18dan diperlukan diperlukan diperlukan.
01:20Diperlukan diperlukan diperlukan diperlukan diperlukan diperlukan
01:24dan diperlukan diperlukan diperlukan diperlukan.
01:26Dan itu berkaitan dengan berbahagian belakang tersebut.
01:30Dan saya pikir Xi Jinping yang menikmati
01:32generous letter, open letter to Malaysia
01:35ahead of his visit. I don't know whether you've read it, but you know, he really
01:39is like a history, you know, textbook of all the, you know, goings-on
01:43between Malaysia and China over decades and centuries, as you mentioned.
01:48So I think going ahead now, of course, you know, economic ties between
01:53Malaysia and China are only going to deepen. We've signed, you know, the Regional
01:57Comprehensive Economic Partnership, or RCEP in recent years, that's building
02:00upon the ASEAN plus China agreement. Now, I think there's discussion about
02:04having ASEAN plus China revisited again in terms of trade agreements. Of
02:10course, our global value chain, we're very much tied up in China, more so
02:13than the US. But of course, the goods end up flowing to the US as well. And
02:17this is where some of the complications come in.
02:18I would like to approach this on two angles. The first is on the cultural
02:22aspect. How are we going to see ourselves as Asian-centric? Don Mahadeh
02:27many years ago, did ask us to pivot, look East policy. That's one area, cultural.
02:34Another area is industries, because especially as you rightly rightfully
02:38pointed out before the start of the interview, sectors like the E&E, for
02:42instance, or Semicon, very much geared towards how the US is going to shape our
02:47industries in this side of the world, especially in the realm of fabrication
02:50and of course manufacturing, not so much the design yet. Now, considering that
02:56China and US are our two biggest trade partners other than that of Singapore, do you feel
03:01that because of the volatility that the White House brings today, more so than
03:07Trump's first term, it's just going to be a reality that we're going to depart
03:13dealing with American companies and America altogether? Or do you feel that this is
03:18just another one of those hiccups, just four years, we're going to get back to
03:21business after Trump? How do you see these two elements?
03:25Okay, this is a big crystal ball question. And I think one of the ways to cut it is to
03:31look at the fact that, okay, Trump is going to be there for at least four years, right?
03:36You know, okay, okay, talk.
03:37I say at least, advisedly.
03:39Yeah, he said that he wants to do another term and the constitution doesn't allow it.
03:42And he says, why not just change the constitution? So there's that.
03:45There's a debate about that. So that's why I say at least four years. But then even if it's
03:49not him, it could well be an ideological heir, right? You've got the likes of J.D. Vance,
03:54who, you know, pretty much is the, yeah, he is the kind of a kind of more hardline ideological
04:01cheerleader for MAGA, you know, make America great again. And he's kind of set out his thoughts
04:06extensively in writing. And he's very articulate about it. So there's every possibility that at
04:12some point, maybe he's next or maybe in another round or two, you know, he could also
04:15be a presidential candidate. And you could see similar policies being brought online.
04:22So what we have to look at is not just the short term with the U.S. We have to look at
04:27the long term, right? And I think it's a good education for Malaysia because you've got,
04:33say, Chinese policy on the one hand, they're very long term, right? They don't do anything
04:36without having done a lot of planning and research. They didn't pivot away from coal
04:39without doing tons of research at the Chinese Academy of Sciences. You know, it's been a kind
04:44of 20 or 30 year kind of project there. Then the U.S. does shift quite a lot. And we've seen
04:50policy shift dramatically towards Asia through many presidents, right? From Obama down to Trump,
04:57then Biden, then back to Trump again. And, you know, the last time we heard America talk about
05:02centuries was the project for the new American century and the neocons, right? And that was
05:0520 years ago under George W. Bush. You know, so far, they haven't really been talking in that kind
05:11of long term time frame. But I think it's a good reminder for us as well. You know, and you were
05:16talking about history earlier. I mean, one of the things to remember, there's this great book by
05:21a scholar from my old university called Janet Abulogod. And she wrote before European hegemony.
05:27and she basically described the Indian Ocean economy before the arrival of the Europeans,
05:33right? And that was basically an economy where, you know, the center was Southeast Asia. And then
05:38you had China, you had India, the Middle East and so forth, right? And the trade flowed back and forth.
05:43This is the monsoon trade, right? Where we were the kind of crossing point. And there were two things
05:48that disrupted it. First, the Mongols invaded from Central Asia. They knocked out both the Chinese
05:53and the Indian empires. Then the Europeans took over the trade routes, right? And then
05:57that became the kind of modern world as we know it, right? But in a way, what we see now,
06:02the potential for it, we see out of these new Asian connections, rise of India, rise of China,
06:07rise of ASEAN as well, is a kind of rebuilding of that old Indian, you know, Indian Ocean kind of
06:14trading network, right? And we're kind of re-establishing these relationships. You know,
06:20this is the time when Malays were very involved in ocean commerce, right? Before the British kind
06:25of forced them out, you know, as Said Hussein Al-Taz has covered it in myth of the lazy native.
06:30So, you know, in a way it's, I think we do have to revisit some of these lessons from the past in
06:37order to help inform our future. But we really need to start thinking strategically long term to manage
06:42the emerging risks, right? And these risks, why are they coming about? In a way, I look at international
06:49relations, realist theory, and that's going to tell us that country like the US, it's become
06:55the superpower, it beat Europe, it beat rivals from Europe such as Germany, and it prevented the rise
07:02of Germany through entering into World War II, and then it beat down Japan in Asia, and so, and it
07:08became the dominant power in its own hemisphere, right? Western hemisphere. And one of the lessons from
07:13that, as the US international relations scholar John Mearsheimer says, is that a superpower like
07:20that, a great power, can't tolerate the rise of another great power. Yeah. Right? And it had,
07:25you know, inevitably, there can only be one, right? And it can't tolerate one emerging and dominating
07:32in another region for fear that it will begin to dominate its own region, right? So there's this kind
07:37of fear of someone interfering with your backyard. I would say that's the kind of guiding theory under,
07:42say, the Obama and the Biden administrations. With Trump 2.0 now, we see a bit of a shift in that.
07:51There is a rivalry with China, but that rivalry is primarily economic. But they seem to want to just
07:57focus on the Western Hemisphere. That's why he's talking about Greenland and Canada, rewriting the
08:02relationship with Mexico, the Panama Canal. It's very much what is the alternate theory of
08:07international relations called spheres of influence. We just want to jug our own backyard,
08:11right? And they're less concerned about interfering with Taiwan. In fact, they want to kind of
08:15de-risk from Taiwan, which I'm sure is good news for China, right? Whereas, you know, you see the
08:21Democrats, they're all in about using Taiwan as a kind of a, you know, geopolitical kind of chess piece.
08:26Yeah, as a shield towards the access to the Pacific Ocean, more likely.
08:29So that has economic consequences, you know, for countries like ours as well.
08:35So when MAGA begins to kind of turn inward and domestically, and they're very, you know,
08:40to be fair to them, you know, people like Vance and so forth, they're very concerned about
08:45the deterioration of the American heartland, right? The loss of manufacturing, which they want,
08:51they see as this kind of quest to regain. That's why we had the tariffs and all this kind of stuff.
08:55Whether they can actually pull it off with these kind of current policies and the way in which
08:59they're engaging in what you could loosely call negotiation is the question at hand.
09:06You've been generous with that term with them.
09:08Yes.
09:08Okay, yeah. But let's look at it this way, right?
09:13Professor Roger Lehman of INSEAD and MIT Sloan, he argued that
09:17what America is doing is not necessarily short-termism. In fact, he argues that they are disassembling
09:28how they want to approach global trade. And it is a group think, considering that Republicans are in
09:34domination of all the three branches of the government. They make no attempts in terms of how to
09:41calm waters. And they, in fact, as you would write, said so just now, de-risking all the kind of
09:50geopolitical elements that are happening everywhere. So retreating inwardly, precipitating the whole
09:57resurgence of Asia again. And, you know, if we draw back or pull back the historical timeline to a
10:05thousand years ago, the two big economies have always been India and China. Now, with the US
10:13retreating, and with India and China in a lot of ways getting their act together again,
10:19and new actors in play, folks like Indonesia, we don't know the wild card that they've been having
10:24for the longest of time, when they're going to play that card if they can act together.
10:29Do you feel that the posturing of the Madani government is on the right path?
10:35You know, I wouldn't say supplicating, but of course, opening the doors and allowing for
10:41greater negotiations to take place. The Ministry of Economy, for instance, is having great conversations
10:48with ARM, the semiconductor company, to have greater IP access, formalism companies to have designing
10:57chips, for instance. We're looking at MITI, allowing for more trade to happen in Africa
11:03and South America as well. Are these the right things to do, considering that on the backdrop of
11:09this, we have that America that we know of today?
11:13I think the government has taken a lesson since the first Trump administration, you know, say back
11:18in 2017, 2018, where there was a start of the US-China trade war, so to speak. And there was this
11:27opportunity about shifting the balance of economic power. And Malaysia, I think I would say actively
11:35took steps to try and get advantages from that. You know, first courting investment moving out of
11:40China that was looking to de-risk and still maintain linkages with the US. And that very much reflects,
11:46you know, Malaysia's kind of core position that we want to look both ways, provided that, you know,
11:51there is a possibility for a fair and mutually advantageous relationship, right?
11:59The current situation has made that more challenging. We've had a good dialogue with China,
12:05and I think it's been great for both countries, for the president of China to come to Malaysia as
12:13while its chair of ASEAN. And, you know, it's the first time I think in 11 years that he's been
12:19back here. And I think it's given, you know, a great recognition to Malaysia's leadership role.
12:25Malaysia has also in recent years tried to diversify its geopolitical and geoeconomic
12:29relationships by engaging with BRICS and becoming a BRICS partner country. And that was also
12:35welcomed by Xi Jinping in the last week.
12:37And we've seen a very close relationship emerge with Brazil as well, including Brazil's
12:43presidency of the G20 last year, where I think Malaysia, for the first time, was invited to join,
12:48you know, the sort of big boys club, right? So it's been a great kind of diplomatic moment for Malaysia.
12:57And on top of that…
12:57G20 and BRICS.
12:59Yeah, yeah, yeah. And, you know, and Brazil actually has opened up communication with Malaysia
13:06for us to help them in their semiconductor industry as well. So we're doing joint design.
13:11I attended a conference last week on the subject. So it's, you know, we're deepening these kinds of
13:18economic relations with these new emerging, large emerging markets, right? And in a way,
13:23it's going to help us because we need to de-risk. Everybody needs to de-risk. Even the European
13:29Union needs to hedge its risks between the US and China, because when the two greatest markets and
13:37producers of the world economy are in conflict, everybody has to think about safety options, right?
13:45Of course, there are practical limits to that in the short term, because there's no other market that
13:49can absorb as much demand as, you know, the US can, right? And Europe is worried about too many
13:56Chinese goods flowing in. We've sometimes had challenges with that as well as the US's closest
14:01borders. Now, I think it's important to have a conversation about managing that relationship
14:06and managing, say, the diversion of trade from the US. But I think we need to step it up and also talk
14:13about, you know, very strategic investments in advanced manufacturing. Because, you know,
14:19our own semiconductor industry, for example, wants to level up. And that's part of the National
14:23Semiconductor Strategy. That's under MITI that the Prime Minister himself has been promoting as well
14:29since last year. Let's talk about things that both your colleague at KRI, Dr. Jomo, has been saying
14:36about Global South and Xi Jinping's statement saying that we need to reinvigorate and deepen our relationship
14:42in the South-South relationship. What's your view on this, considering that most of the supply chain
14:49raw material elements are in Asia and in the South, the Global South area? Advanced manufacturing,
14:57you touched it briefly just now, but do you feel that this is the time for us to be serious about G20,
15:06about BRICS, about Global South and other corporations that we may have not been looking at seriously
15:12before, perhaps due to our over-dependence to the three or two big markets or trading partners
15:19that we have? Is this the time for us to, in the process of de-risking, move towards a greater
15:26cooperation between the Global South right now? Yes, partly because the time is right,
15:33because there are a growing number of emerging market, middle-income, rising middle-income
15:37countries coming from the Global South, both from Latin America as well as Africa and Central Asia.
15:43That's a lot of choices as it is, plus the fact that the geopolitical conflicts are also forcing our
15:50hand. Now, we have to be realistic about it, because to invest in the Global South as major trading
15:58partners is really to invest in them as trading partners of the future. We have to lay the seeds now
16:04for 10 to 20-year pay off, but it will pay off, because I think this conflict between the US and
16:11China is structural, it's deeply structural. It's the nature of realist international relations that
16:17they are coming to conflict, primarily because China has been successful at the manufacturing game.
16:23It's been successful at re-industrialization. I say re-industrialization because China used to be
16:28around 24-25 percent of the global economy's manufacturing capacity back in a couple centuries
16:33ago. They lost it, and now they're back again. In a way, that's what the US wants to try to do for
16:39itself. Rather than trying to learn from China, they're just trying to butt heads with them. I think
16:46there are lessons there. There are very important lessons for us, but we're a small country. We don't
16:50have the scale of either the US or China, so we kind of have to do it in a different way.
16:55But we have great competencies, great skills in a number of areas of industrialization,
17:01technology, semiconductors, agriculture, and so forth. And we've also built very good
17:08institutions for accumulating and managing wealth. Our oil and gas wealth has been channeled into
17:14sovereign wealth funds, like Kumpulan Wangamana Negara. It was used to set up Pemodala National Bahad,
17:21which partly was used to decolonize the economy by taking the plantations back into Malaysian ownership.
17:27among other things. Yes. These are very important lessons and institutions that are not
17:34necessarily present in a lot of Global South countries. Malaysia actually has a lot of teach
17:41other countries. It comes to mind that a couple of newly oil-exporting countries like, say,
17:47Guiana, Senegal. They've become major oil producers, but at a time when you've got climate
17:53change putting policy pressure on them. But they have this kind of window where they can convert
17:58that oil and gas wealth into lasting institutional financial capability and power to drive development
18:05there. And I think Malaysia has lessons there. And I think there's investment opportunities that go
18:09along with that. Maybe Petronas can explore those kind of things and those kind of relationships.
18:14and certainly in terms of the downstream suppliers as well that we have here.
18:20Therefore, it begs the question, does Malaysia have the competency, if not today, in the near future,
18:25to build these kind of industries resurging or to be in tandem with the resurgence of China back into
18:34global dominance, especially in the realm of private sector to make things more efficient. Talent
18:41management, talent growth in order for us to keep up with our needs of the industry, as well
18:47as our utilization and leveraging of automation through artificial intelligence. Where do we stack
18:54when it comes to similar economies, maybe not the same but similar enough, small industries, small
19:01economies like Taiwan, who is good in one thing but damn good at it. Singapore, which is good in one
19:07thing but damn good at it. And South Korea again, good in one thing but damn good at it. Do you feel
19:13that that is perhaps the recipe for success? And how does this come against the three elements that I
19:19spoke of earlier? I think that recipe of success is not just being really good at just, you know,
19:26one or a few things, but also testing those capabilities that you have in the competitiveness of
19:33export markets, right? I mean, that's one of the lessons from industrial policy is that if you just
19:38focus on the domestic market, one, the scale limits you, two, you may not get an honest signal about how
19:45great and how competitive your product is, right? But when you take it to the global market, then you're
19:52competing against firms from all over the world. And that's the best signal, if not anything else.
19:55And if you can survive that, that's how the Koreans made it, that's how the Japanese made it, that's how the
19:59Taiwanese made it, that's how the Chinese are making it now, right? And that's a lesson for us as
20:02well, you know. Can we, you know, go from like, you know, zero to 60 or zero to 80 straight away?
20:09No. But this is where the global south comes in, right? You can, you know, you can begin to compete
20:15export markets in slightly less, you know, intense competition environments, right? Say some African
20:24countries, Central Asia and so forth, and then begin to scale up, you know. There are countries
20:30in, say, Africa where European Union products, for example, are major competitors, right? And can we
20:39compete against them there? Because to get into European Union, it's still quite protectionist.
20:42They make it quite tough for us, right? Yeah. But to do it in the third country. Palm oil, for instance.
20:46Yeah. To do it in the third country, and Africa is a major consumer of our palm oil,
20:50um, I think that's, that's an interesting, you know, test of our firm capabilities, right?
20:55So on top of, uh, you know, departing in the American market, perhaps departing the EU market,
21:00perhaps is the next thing that we have to have on our agenda. Yeah. I mean, the EU, you know,
21:05the EU hasn't made it easy, right? And, uh, you know, but isn't purchasing power, the unit economics,
21:11the PPP, the GDP per capita of these markets, far surpass all these markets that we speak of just now?
21:19Well, the challenge with the EU is that, you know, they, they've had near stagnant growth
21:24for the last couple of years, right? Um, and some would attribute it to that. Some even declined to
21:29the UK. Yeah. So, and, and they have this kind of geographical split, you know, you've got the
21:32eastern countries like Czech Republic and Hungary, which are zooming ahead, right? They're, they're
21:36basically emerging markets in the European Union. And then you got your France and Germany who have
21:40been a little bit more tepid, right? Uh, of course, it's been renewed interest now that
21:44Germany has changed its fiscal policy, right? Yeah, but on balance, you know, if you group it together as a
21:48collective. Yeah. So it's not, it's not as a dynamic as a consumption market. And they've
21:52been struggling with inflation and shocks, you know, from the Ukraine, Russia conflict, as well
21:56as COVID and energy spikes. Uh, so their ability to consume goods also is, is not that great.
22:01Yeah. Right. Or it has its limits. Yeah. Um, at the same time,
22:05but when we talk about say the African market or Indonesia, for instance, it's,
22:09yeah, there's, there's, there's, there's big potential there. And since it's a low base,
22:14any, any upside is still, you know, 10% increase is actually quite astronomical.
22:18Absolutely. Yeah. And, and there's potential Latin America as well. So I think it's good for our,
22:24our firms to explore these, uh, opportunities. And from what I hear from the stats being read out by
22:29the Metis minister, uh, that's already happening. Um, um, you know, take one example,
22:34uh, you know, country like Rwanda, right? Very small country. Right. And you know, it's,
22:39it's had a colorful history, but they tried to only know of one thing in Rwanda and that's not the
22:44great one that I should know. We, we know about the movie Hotel Rwanda. Yes, of course. Yeah.
22:48But you know, Rwanda has, has reinvented itself. They turned themselves into the tech hub of Africa.
22:53Right. And I'm sorry, I didn't know that. Yeah. They turned themselves into tech hub of Africa.
22:58They have a very laissez faire approach, uh, towards drone policy. Anybody who wants to do
23:02innovation in drones, you can just go there and put up the drones and, and experiment with them,
23:07right? Because they, they want to create that kind of environment. Then one of the entrepreneurs,
23:11uh, he's like a, you know, uh, African of Indian origin. He said, why is Africa always exporting
23:18critical minerals to make mobile phones and not producing our own? So then he set up a project to do
23:24the Rwanda phone. It's like an Africa phone and they managed to make the made in, made in Africa
23:29smartphone, right? All locally sourced and manufactured. Of course. I mean, and talk about
23:33supply chain, it's very short. Yeah. Everything is mined there, source there. Yeah. Yeah. You just
23:38need to bring in the tech, you know, chips and all this kind of stuff. So they, they pulled that off,
23:43right? You know, in a way that they actually look at USM because they wrote the president, uh,
23:47I think it's president or prime minister of Rwanda. He talks about wanting to be the Singapore
23:51of Africa, you know, so they're looking at our part of the world for, for inspiration. Uh, so I think
23:57there are, you know, there, there are good opportunities and lessons there. You know,
24:00we shouldn't take Africa for granted. It's not the same place as it was say 30 years ago.
24:04You know, it's a very different place now. Most of the folks I speak to on this show, I always ask
24:09about geopolitics. Um, I'll spare you of that, but I want to ask you, what are you looking at for the next two,
24:14to the, the two or three items that you're looking at and rather closely looking at it? Uh,
24:20and why? Well, I mean, one of the areas I'm looking at a lot now is, um, our semiconductor industry
24:26and the potential for us to level up, right? And leveling up is often meant, um, you know,
24:33finding a kind of deeper and more productive and mutually enriching relationship with, uh, our major
24:40trading partners on semiconductors. That's basically the U S and China. Um, it's made very
24:46complicated now in the last couple of months. Um, but I think there's still a lot of potential in
24:51Malaysia as a sort of safe haven, very neutral, uh, place of production. Uh, but I think we have to
24:57begin to look at diversifying the markets for our semiconductor products. It won't be easy in the
25:02short term because the tariffs place a great deal of uncertainty and you know, uh, president
25:08Trump has vowed to put some kind of measures on all semiconductor products, uh, not just Malaysia,
25:14but everywhere else, uh, in the coming months, we don't have visibility of what that will be
25:19and understanding that is going to be quite important. Uh, I think also understanding the way in
25:24which global value chains can shift in Malaysia's favor of getting more value added done here
25:31is also quite important. And tied to that is developing a talent pool, uh, you know,
25:37developing our incentives for firms to do quality production in house in Malaysia. Uh, that's a big
25:45challenge. So I would say Semicon manufacturing, um, you know, we want it. Every country wants to get
25:50better in manufacturing, especially the design part. Yeah. And a lot of countries are jumping on the
25:54semiconductor bandwagon. But I think the thing to recognize about Malaysia is that basically it's only,
25:59it's one of 11 countries that really has a serious semiconductor industry and we've had over
26:0450 years. But that also means that we are one in 11 countries chasing investment money to grow these
26:10kind of industries. It's pretty red ocean space, unless we have that, I don't know, je ne sais quoi.
26:17I think we've, we've done better than say some, you know, um, emerging Gulf countries who, you know,
26:22they've thrown billions at it, right? Um, and they've built sort of factories in the desert and so forth,
26:27but they've not really been able to build an industry precisely because they don't have the
26:30ecosystem that we have here in Malaysia. So I think we have to take that advantage and, and turn it
26:37into even more strategic use for our manufacturing future. Because to be honest, you know, I, I do
26:44understand where some of the U S is coming from because we've also de-industrialized right since the
26:49early 2000s. And the challenge that we have now is to re-industrialize. That's why we have the new
26:55industrial master plan and all the ambitions in there, right? You know, we have no choice because
27:00industrialization is the, is the key. It's the, it's the secret source in order to get better wages,
27:06better jobs, right? Better research going on in our universities and ultimately a better quality of
27:11life, right? These are the Malaysian goals. Uh, but we have to achieve them through the development of our
27:17own industry, our own large firms. And we've got to export this kind of stuff because you know,
27:22the Malaysian market is just not big enough, right? So we need to have these good trade and
27:26diplomatic relationships with our neighbors, both near and far in order to take advantage of that
27:30and build a better future for Malaysia.