KUALA LUMPUR (May 3): Proposed US tariffs on Chinese technological goods pose a direct risk to Malaysia’s trade momentum, given the importance of electrical & electronic (E&E) products to the overall export share, as well as the sector’s established position in the global value chain, according to RAM Ratings. 

However, the composition of US imports from Malaysia and China respectively, is different, as Malaysia acts more as a source of intermediate parts and components. 

“China’s shipments to the US, on the other hand, constitute mostly finished goods, which is what the US believes primarily puts its own producers at a competitive disadvantage,” RAM Ratings said in a press release today. 

Accordingly, a larger volume of finished technological goods is likely to be produced onshore in the US, thus bypassing China.

The upside to Malaysia’s export resilience would be manifested in the form of intermediate goods demand coming directly from the US, rather than through China, which has thus far acted as a conduit, RAM observed. 

Additionally, firms might decide to vertically integrate their processes in Malaysia, potentially increasing foreign investment and in turn, boosting exports. 

RAM also noted lower export and import price growth should feed through to more moderate nominal trade growth in 2018, in contrast with the robust growth seen in 2017.