EIU report: Malaysia a winner in US-China trade war

EIU report: Malaysia a winner in US-China trade war

KUALA LUMPUR,. Malaysia is one of several Asian countries that will strongly benefit in some sectors from the US-China trade war, the latest report by The Economist’s Intelligence Unit (EIU) showed.

In the London-based publication’s latest report made available to Malay Mail today and titled “Creative disruption: Asia’s winners in the US-China trade war”, the EIU said that the ongoing tiff has seen the two economic superpowers so far imposing trade tariffs or taxes amounting to around US$360 billion (RM1.5 trillion) worth of merchandise between them.

The EIU noted that the US-China trade war will cause product prices to be higher amid shifts in production to more expensive locations and result in collateral damage to many economies, but said that new opportunities will open up for exporters in other countries as US’s and China’s importers look for alternative suppliers.

The report said that the “lion’s share of the gains from the trade war will fall to countries in Asia”.

But not all winners in Asia are equal, and Malaysia is pipped to be one of the bigger winners in the information and communications technology (ICT) and automotive industries, in comparison to some of its regional peers.

ICT

According to the EIU report, Malaysia’s ICT industry is well-poised to gain from the shift in trade, partly owing to its strong logistics network and a good business environment.

“Vietnam and Malaysia will benefit the most from the US-China trade war, particularly in low-end manufacturing of ICT products, such as intermediate components and manufacturing of consumer goods like mobile phones and laptops,” the report said.

The report pointed out that major electronic companies would be able to redeploy investment and production relatively smoothly as they have existing operations or plants in both Malaysia (US’ Dell, Japan’s Sony and Panasonic) and Vietnam (US’ Intel and South Korea’s Samsung).

“In addition, both countries have strong road, rail and port infrastructure, which has in turn helped to develop strong local logistics and shipping networks to support merchandise trade,” the report said.

The EIU report noted that both Malaysia and Vietnam have also signed multiple free-trade agreements, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Asean Economic Community.

The positive business environment in Malaysia (an existing clear and stable system for corporate law) and Vietnam (strong investment promotion policies via new special economic zones) will make these two countries even more attractive for companies that are considering them as potential locations for ICT investments, the report said.

Within Asia, the EIU report placed both Malaysia and Vietnam in the category of obtaining “strong benefits”; while India, Indonesia and Thailand are placed in the “mild benefits” category; and the Philippines, Japan, Singapore, South Korea and Taiwan are categories as countries whose ICT industry will face disruption due to the trade war.

Automotives

For the automotive and car parts sector, the EIU report said “Thailand and (to a lesser extent) Malaysia will benefit the most from dislocation caused by the trade war”.

The report noted that Thailand is an important regional manufacturing hub for cars and car components, with over half of its production for exports to a well-diversified market such as US, Japan and other Asean countries.

Thailand’s local automotive part producers are expected to win over market share currently held by China’s firms in the US as the trade war escalates, while luxury car markers such as BMW and Mercedes-Benz who have existing operations in Thailand will also ramp up their production there to support shipments to China.

“Although finished vehicles and auto-part exports are a small part of its total exports, Malaysia has over 800 auto component manufacturers, as well as a similarly diversified auto component export network.

“This should position it to be another beneficiary of the disruption,” the report said.

In comparison, India, Indonesia, the Philippines and Vietnam will have mild benefits; while the automotive industry in Japan, South Korea, Taiwan and Singapore will be disrupted by the US-China trade war.

Malaysia was not identified by the EIU report as a country that will experience significant impact in its apparel and readymade garments industry due to the US-China trade war, with Asia’s major garment exporting nations Bangladesh, Vietnam and India instead categorised as countries that will strongly benefit in this aspect.

When will the benefits show?

The EIU report said a majority of these Asian countries will not feel the impact of the changes overnight, adding that it will likely take at least two to three years for the trade war’s effects to be fully realised.

“Multinational companies will need time to draft new global and regional strategies, find new partners, navigate different legal systems and secure the required licences and permits for new production facilities,” the report said, adding that this will result in the negative and disruptive effects of the US-China trade war predominating in the short term.

“Even under the most optimistic scenario, the benefits for Asia’s winners in the trade war are unlikely to be seen before 2020,” it added.