Ginormous Rm1t Bill For Small Tariff Cut

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And so the cost of that reduction in tariff to 19 percent from 25 for Malaysian goods to the US is revealed as over US$240 billion - more than RM1 trillion. That’s paying way too much for very little, leaving us gaping at the gigantic sacrifice made.
Investment, Trade and Industry Minister Tengku Zafrul Abdul Aziz enumerated the concessions:
US$150 billion in purchases by multinational companies in Malaysia’s semiconductor, aerospace, and data centre sectors over five years;
US$70 billion in Malaysian investments in the US over 10 years;
ADSUS$19 billion Boeing aircraft purchase by Malaysia Aviation Group (MAG) for fleet renewal;
US$3.4 billion per year in liquefied natural gas purchases (LNG) by Petronas;
US$42.6 million per year in coal purchases by Tenaga Nasional Berhad;
US$119 million in telecommunications product purchases by Telekom Malaysia;
And this, on top of zero percent import duty on over 11,000 items or 98 percent of US goods imported, is what’s being hailed as a major victory, along with that truce between Thailand and Cambodia!
It is emphatically not. Who’s to bless and who’s to blame for this sad state of affairs, taking undue credit and spinning concessions as gains?
Ceasefire credit
Prime Minister Anwar Ibrahim, using Malaysia’s position as the Asean chair, facilitated the meeting between Thailand and Cambodia, who had been skirmishing at the border, and both agreed to a ceasefire they wanted.
Is that such a big deal? No. It could have just as well been any of the Asean 10 whose turn it was to chair the bloc.
PM Anwar Ibrahim, flanked by Cambodian PM Hun Manet (left) and acting Thai PM Phumtham WechayachaiIt was merely fortuitous that Anwar had the chance. To make a big deal about it is certainly not politic, implying that Thailand and Cambodia could not have agreed to a ceasefire without Anwar - that’s stretching things way too far.
One more, is getting Donald Trump to come for the Asean summit, a coup - the most unstable, illogical and irrational president the US has ever seen who uses every opportunity to grandstand and show how he is going to make America great again?
Really, we should not give him the chance.
ADSBarrage of needless praise
That barrage of needless praise for Anwar is way over the top. An example is this, written by a national journalism laureate and Bernama chairperson:
“It has certainly been a defining week for Prime Minister Anwar Ibrahim as he notched double wins at the diplomatic and economic fronts, which even his opponents would find difficult to fault.”
Praise for the achievement on the diplomatic front is overdone as we have seen, but did he score “a much-needed economic reprieve after the US agreed to scale back steep tariffs that had been threatening Malaysia’s export-driven economy”? No.
Tariffs are paid for by the ultimate buyer, the US consumer, unless the exporter drops prices to keep their competitiveness up. But 19 percent is simply too much to absorb, and more than the profit margin for most.
The problem with tariffs is that they reduce demand for products compared to substitutes, but if everyone faces similar tariffs, that’s not the case any more - all prices increase.
New York City, USImagine the impact on US inflation, but that’s not our worry.
Our worry is how much tariffs will affect us, how much tariff revenue we forego and how much we will have to kow-tow to a person who is a convicted felon, shown himself to be a racist and fascist and who supports genocide in Gaza.
By now, Trump’s tactics should be clear - ask for the moon first, but he might settle for the top of the coconut tree if you drive back a hard bargain. He wants to raise revenue for the US, which the US consumer pays for but hides with false trade rhetoric.
He reduced tariffs from a threatened 50 to 25 to 19 percent, incidentally the same figure for Indonesia, Thailand and Cambodia. But that’s still a high figure - and it is already making a huge impact on US revenues.
According to this report, Trump’s tariffs have already started to generate revenue - customs duties, and some excise taxes, generated US$152 billion through July, roughly double the US$78 billion netted over the same time period last fiscal year, according to US Treasury data. The full-year impact is likely to be larger.
Flawed argument
The US argument for higher tariffs is the high trade deficit with the US. But this is flawed - the nature of exports needs to be examined because Malaysia produces some goods which the US requires, and the US produces some goods which Malaysia does not require, are unsuitable, and are not competitive.
The other very important factor is that the trade in services, too, should be taken into account. When this is included, it gives a better picture - the deficit or surplus in the trade of goods and services, known as the current account.
According to Malaysian figures, exports to the US were RM119.5 billion in 2023, while imports were RM63.3 billion (see table), to give a trade surplus of RM56.2 billion.
The Statistics Department said Malaysia exported services worth RM36.6 billion to the US in 2023. But the US exported much more in services to Malaysia at RM76.1 billion in 2023, particularly in travel, other business services, and transport. This gave a huge services deficit of RM39.5 billion to Malaysia.
Therefore, the combined trade and services deficit with the US is reduced to just RM16.7 billion compared to a deficit of RM56.2 billion if only goods were used, which is really not that much when we consider the composition of exports.
None to bless
The bulk of exports to the US comprises mainly semiconductors and related equipment such as machinery and technical apparatus, the first three items in the table below.
Many of these intermediate goods for US manufacturing are exempt from duties, along with pharmaceuticals and total more than RM30 billion in exports of goods.
Looked at it this way and properly explained, Malaysia does not have a major issue with the US over the combined trade in goods and services, with that RM30 billion figure exceeding the RM16.7 billion deficit.
Should the other products, such as rubber gloves, furniture, and fats (including palm oil) be subject to a 19 percent duty? No! And should we continue to tax other US products at the same rate they are taxing our products? Yes!
Is that what’s happening? No! We have the wrong end of the trade deal - let’s not pretend that Anwar and Zafrul did a great thing because the tariff is 19 percent instead of 25 percent, and allow them to make great political capital out of it when none is deserved.
We might as well have taken the 25 percent tariff instead of RM1.02 trillion in giveaways, promises we may not even be able to keep.
What prompted us to make such deep and long-lasting commitments for a six percent advantage in some import duties, likely to be less than 10 percent of our total exports to the US?
Even if we assume 20 percent of exports or some RM23.8 billion are subject to tariffs, that six percent difference amounts to just RM1.42 billion a year. The RM1 trillion worth of concessions is 708 times that! Ridiculous.
For tariffs, Trump is primarily to blame; Malaysia compounded his incessant bullying many times by giving much more than asked. There’s none to bless. For the truce, none to bless and some to blame. - Mkini
P GUNASEGARAM is suspicious of those who claim credit when none is due and contemptuous of those quick to assign such credit - wrongly - for their own purposes.
The views expressed here are those of the author/contributor and do not necessarily represent the views of MMKtT.

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