US-China trade war boon for Malaysian exporters

PETALING JAYA: As US is imposing new tariffs on US$200 billion (RM828 billion) worth of Chinese goods, local exporters are expected to see some increase in orders from the affected players in the two big economies over the next few months.
It is understood that the US tariffs will take effect on almost 6,000 goods from Sept 24, starting at 10% and increasing to 25% from the start of 2019. Items taxed include everyday items such as suitcases, handbags, toilet paper and wool; and food items from frozen cuts of meat, to almost all types of fish, soybeans, various types of fruit and cereal and rice.
Sunway Business School Economics Professor Dr Yeah Kim Leng told SunBiz that he believes the affected firms in both respected countries will be looking at sourcing for other countries and relocate part of their production plants to other countries including Malaysia.
“Of course they will be exploring and we (Malaysia) already seeing some inquiries. Based on their feedbacks, they are seeking on how they can divert some of their orders to Malaysian companies.
“Now that the lists of goods are much more wider, they (local firms) are likely to see greater inquiries and look into securing some of the production contracts,” Yeah said, as affected companies are looking to reduce their costs due to the additional tariffs.
He opined that while the 10% tax is less damaging, the 25% tax will add to the cost pressures for both consumers and businesses in the respective industries.
Yeah however believes that the slowdown in global growth may deter the affected players from expanding their capacities or relocating their plants to other countries, and instead have them look at existing companies to supply their orders for those affected goods.
“In the short term, Malaysia may also not be able to capitalise on that given our full capacity constraints.
“There might be a capacity constraint for Malaysian companies to ramp up production but those with spare capacities will stand to benefit to complete some of the orders,” he added.
Meanwhile, FXTM global head of currency strategy & market research Jameel Ahmad said that the US’ new tariffs has encouraged further risk aversion across the markets as expected.
Jameel opined that this move will make investors more sensitive to the ongoing uncertain external environment and expects those currencies belong to markets with weaker external positions to be hit hardest in the aftermath of this decision.
“The US dollar has once again strengthened on increased trade tensions, while a wide basket of different emerging market currencies is once again on the back foot due to a lack of risk appetite for emerging market assets.This probably means another blow for the likes of the Indian rupee, Indonesian rupiah and South African rand.
“The outcome is negative for the Chinese yuan, however it has been priced in throughout recent weeks and the reaction in the yuan has not been as negative as would have been first feared. The yuan is down just over 0.10% at time of writing.
“The ringgit and rupiah are example of two Asian currencies that are trading more negatively than the Yuan, in reaction to this news,” Jameel added.
The local note was down to 4.146 to the dollar. The FBM KLCI was down about 10 points to 1,792.94 points.
On another matter, Yeah said the escalating trade war will likely give greater impetus for both China and US to pursue on their respective regional trade agreements and divert them from each other economies.