The latest announcement of a 19 percent tariff rate to be imposed on Malaysia’s goods entering the United States has, in some ways, brought relief to many of us.
However, chances are that many would argue Malaysia could have negotiated a lower tariff rate. Are we giving up too much?
In a recent professional lecture at Universiti Kuala Lumpur (UniKL), Majlis Amanah Rakyat (MARA) Council Member and former Governor of Bank Negara Malaysia (BNM), YBhg. Tan Sri Muhammad Ibrahim, noted that Malaysia has experienced significant impacts from Trump’s tariff policies.
This is largely due to Malaysia being a trade-dependent emerging economy, with combined imports and exports totalling 140 percent of Gross Domestic Product (GDP), and having significant exposure to global supply chains.
While such data are often presented in news articles and research reports, what do they mean to us — especially students and future job seekers?
As future engineers, business leaders, and innovators, UniKL graduates will enter industries shaped by policies like tariffs.
“In the long term, Malaysia should focus on economic diversification, with efforts to decrease reliance on any single market, move toward higher-value segments of global value chains, and enhance domestic consumption and investment to strengthen local demand.
“This also involves institutional strengthening, with improved macroeconomic policy frameworks to withstand external shocks, better monitoring of external economic developments through early warning systems, and stronger institutional capacity for crisis preparedness,” explained Tan Sri Muhammad, stressing the importance of economic diversification.
He further noted that a tariff is not simply a tax imposed on imported goods. It is not a neutral policy tool.
While it may appear to be a straightforward revenue-generating mechanism, tariffs fundamentally alter market dynamics, consumer behaviour, and international relations.
Let’s look at the advantages first. Tariffs provide immediate protection for domestic industries, helping to preserve jobs and support local businesses.
They also generate government revenue without directly taxing citizens’ income, while at the same time allowing new industries to grow by shielding them from established foreign competitors.
However, the inflection point of tariff policy occurs when the marginal costs of protection equal the marginal benefits.
At first, modest tariffs may effectively protect domestic industries while generating revenue with minimal economic distortion. However, as tariff rates increase beyond optimal levels, the costs begin to dramatically outweigh the benefits.
This tipping point varies by industry, economic structure, and international relationships. Beyond it, excessive tariffs can create significant deadweight losses, provoke retaliation, and reduce overall economic welfare.
Tan Sri Muhammad used Proton’s case as an example. Proton’s prolonged tariff protection in the past, he noted, ultimately deteriorated its market share and weakened its international competitiveness.
“The Trump administration’s tariff policies presented notable challenges for Malaysia, compelling the nation to adopt a more nimble and strategic approach in its policy framework. Malaysia’s experience underscores several critical lessons for managing external economic shocks.
“The ability to rapidly adjust fiscal and monetary policies proved vital. Participation in ASEAN, BRICS, and other regional economic integration efforts will strengthen Malaysia’s position.
“Collaborative trade and investment agreements with regional partners have provided alternative markets and supply chain channels, reducing the impact of US-centric policy shocks,” he said.
