KUALA LUMPUR (Oct 3): Credit rating agency RAM Rating Services Bhd has projected that Malaysia’s exports growth will decelerate to 3.3% in August compared with 9.4% in July, as the sale of goods abroad starts to slow on the back of more cautious sentiment amid escalating trade tensions between the US and China.

After the second round of tit-for-tat tariffs imposed by the two economic giants in August, the risk to trade momentum was heightened further when the US imposed a third round of tariffs on Chinese imports valued at RM200 billion on Sept 24, RAM noted. "At 10% initially, this rate is set to increase to 25% in January 2019," it said in a statement today.

Malaysia is among countries expected to benefit from the trade diversion effect of the tariffs imposed by the two economic giants — with the biggest potential gain seen in the electrical and electronic (E&E) products space — though competition from other markets in the region may dilute some of the potential gains.

There is further potential for E&E trade diversion for Malaysia in the third round of US-China tariffs on Sept 24, despite not being a main beneficiary of the overall basket of goods tariffed, RAM said.

"Electronic components under both US and China’s set of tariffs, respectively, constitute 6.8% and 16.4% of Malaysia’s overall exports, with correspondingly strong RCAs of 1.38 and 1.50,” said RAM's head of research Kristina Fong, who was referring to the country's Revealed Comparative Advantages to benefit from the US’s second round of tariffs (imposed on Aug 23) on China, which places heavier focus on semiconductors.

That said, she noted markets like Vietnam and the Philippines have higher RCAs for this group of products.

E&E products constituted 36.7% of Malaysia’s total exports in 2017.