Malaysia might experience a slowdown in investments as US firms focus on strengthening local operations
by SHAUQI WAHAB
Original Link : https://themalaysianreserve.com/2024/11/11/trumps-presidency-raises-concerns-for-us-investments-in-malaysias-semiconductor-data-centre/
DONALD Trump’s return to power after winning the recent US presidential elections against Democratic party’s Kamala Harris is stirring anticipation and concern within global industries.
The focus now is on the possibility of Trump repealing or significantly altering the CHIPS and Science Act, which has played a pivotal role in shaping the global semiconductor landscape.
The act, signed by President Joe Biden in 2022, allocated US$52 billion (RM288.91 billion) to support US semiconductor manufacturing.
Analysts are speculating that Trump may seek to revise the Act to place greater emphasis on domestic production rather than collaborating with international partners like Malaysia, affecting US-based companies such as Intel Corp, Texas Instruments Inc and Western Digital Corp.
Independent researcher and Noma SWO Consult associate partner Nik Zafri Abdul Majid said Trump’s policies are likely to focus heavily on reshoring production to the US, reducing dependence on foreign manufacturing.
He explained that Malaysia might experience a slowdown in investments as US companies focus on strengthening local operations instead of relying on international supply chains, as witnessed during Trump’s previous administration.
Semiconductor Reshoring, Malaysia’s Strategic Position as Neutral Player
Although reshoring could present challenges, Malaysian Semiconductor Industry Association president Datuk Seri Wong Siew Hai said Malaysia has the potential to leverage changes in US trade policies as an opportunity to strengthen its semiconductor ecosystem.
He opined that Malaysia must invest in local talent and create a robust environment for global companies to thrive.
“To capture this once-in-a-generation opportunity of the semiconductor industry forecasted to grow to RM4.4 trillion by 2030, Malaysia needs to cultivate its talent and attract top-tier global talent to contribute to Malaysia’s aspiration to move up the value chain,” he said.
Despite the challenges posed by shifting US policies, Malaysia could stand to benefit from its strategic positioning as a neutral, non-aligned country.
Wong pointed out that Malaysia continues to be an attractive investment destination due to its stable political environment and strong relationships with both the US and China.
“Malaysia will continue to benefit from the ‘Plus One (+1)’ strategy. This trend encourages companies from the US, China and Europe to diversify their investments by considering Malaysia as a stable and strategic location to mitigate their risks.”
Amid ongoing geopolitical tensions, Malaysia’s neutrality allows the country to attract investments from both sides of the trade war.
Wong stressed that Malaysia must take advantage of this positioning by accelerating its development of a competitive semiconductor ecosystem.
This includes initiatives such as the National Semiconductor Strategy, enhancing Malaysia’s standing in the global semiconductor market.
By fostering strong relationships with global players and focusing on innovation and talent development, Wong believes Malaysia could secure a leadership position in the industry, even if global trade dynamics shift.
Meanwhile, SPI Asset Management managing partner Stephen Innes believes while the US-China trade war continues to create volatility, Malaysia could still be poised for growth due to its central position in South-East Asia.
He said Malaysia stands at a crossroads, potentially emerging as the region’s “Silicon Valley”.
“In a region brimming with opportunity, Malaysia stands poised to position itself as a linch-pin for Asia Pacific trade, deftly navigating the US-China rivalry while keeping doors open to both economic powerhouses.”
Innes then elaborated on the potential of the semiconductor industry in Malaysia, citing the BRICS agreement as a possible avenue for growth through increased regional cooperation.
However, he remained optimistic about Malaysia’s resilience even if Trump was to repeal the Chips Act.
Additionally, he opined that Trump’s strict policies may transform Malaysia’s export landscape, in which electronics, palm oil and machinery exports may face shifting demand dynamics, yet with a huge upside.
“As businesses look to diversify away from China, Malaysia’s role in critical global supply chains could expand exponentially,” he added.
Impact of the US-China Trade War on Malaysia’s Semiconductor Industry
Trump’s approach to trade, particularly his imposition of tariffs on Chinese goods, remains a key concern for Malaysia.
While the US continues to grapple with its trade deficit, the tariffs have created volatility in the global supply chain, especially for countries like Malaysia that depend on both US and Chinese imports and exports.
Universiti Malaya’s finance expert in Business and Economics Faculty Dr Aidil Rizal Shahrin discussed the ongoing uncertainty that these trade dynamics create for Malaysian businesses, notably the retaliatory tariff on Chinese goods.
“In terms of Malaysia’s exports, this trade war creates more uncertainty. Prices also become volatile, making it harder for businesses to plan,” he told TMR.
He said it is challenging for exporters and importers in Malaysia who are already dealing with currency risks.
The continuation of these trade tensions could further complicate Malaysia’s semiconductor industry, which relies on an intricate global supply chain.
Aidil Rizal added that the trade war has not shown clear economic benefits for the US, and it remains uncertain whether Trump would re-evaluate the retaliatory tariffs that continue to affect global trade.
He also pointed out how these shifting policies, compounded by currency volatility, make it more difficult for businesses to plan effectively.
He noted that the depreciation of ringgit could have a mixed impact on exports and imports.
“When ringgit depreciates, exports become relatively cheaper for foreigners, while imports become relatively expensive for Malaysians and vice versa.”
The ongoing trade war could worsen this situation, as businesses face rising costs from tariffs and fluctuating exchange rates.
Trump’s Tax Policies and Their Economic Consequences
Another major concern of a Trump presidency is the possibility for changes to tax policies, particularly those impacting corporations and individual income taxes.
Aidil Rizal said Trump’s previous administration saw the introduction of the Tax Cuts and Jobs Act, which included corporate tax reductions aimed at stimulating economic growth.
These cuts, he said, led to an increase in the US government’s deficit.
Trump has suggested that similar tax cuts could be a central part of his 2024 campaign platform, which could further strain the US budget.
“If this promise (of more tax cuts) is delivered, it would put more strain on US debt, around US$35 trillion today,” Aidil Rizal added.
Such changes might indirectly impact Malaysia’s economy through shifts in global investment patterns and currency fluctuations.
Meanwhile, Bank Islam’s chief economist Dr Mohd Afzanizam Abdul Rashid warned that while tax cuts might boost the US economy in the short term, the long-term implications could be problematic as the country is still in a large amount of debt.
“Given that Malaysia’s GDP growth has historically shown a 70% correlation with US economic performance, a slowdown in US growth could dampen Malaysia’s economic expansion as well,” he said.
Hence, any disruptions to US fiscal policy could ripple across the globe and affect Malaysia as well.
He also pointed out that Malaysia’s financial relationship with the US could be affected by Trump’s tax policies.
Mohd Afzanizam said the Double Taxation Agreement between the US and Malaysia is designed to prevent double taxation on income.
Therefore, he said if Trump pursues further tax cuts, this could complicate the tax landscape and create additional burdens for businesses operating between the two countries.
US-M’sia Partnership: Insights, Future Economic Prospects
For concerns on the future economy, International Islamic University Malaysia’s economist and expert on international trade relations Prof Dr Azhar Mohamad shared his insights into the future of the US-Malaysia relations under the Trump administration.
He noted that Trump’s “America First” focus could lead to a more protectionist stance, which would have ripple effects on global trade, especially for countries like Malaysia that depend on both US and Chinese investments.
“If similar policies are reinstated, there might be a strategic shift encouraging US technology firms to prioritise domestic investments over foreign ventures,” he told TMR.
However, he remained cautiously optimistic, stressing Malaysia’s strengths in diversifying its economic relationships.
Azhar said Malaysia’s focus on economic diversification and strengthening ties within Asean and other regions would give the resilience needed to mitigate some of the risks posed by potential US policy shifts.
Trump’s foreign policy has traditionally been marked by isolationism, particularly in his withdrawal from multilateral agreements such as the Paris Agreement and the Trans-Pacific Partnership (TPP).
His stance on these issues could have long-term consequences for the US-Malaysia relations.
Meanwhile, Aidil Rizal speculated that Trump might continue with his previous withdrawal from the TPP, which could cause some South-East Asia countries to strengthen their ties with China instead.
It could affect Malaysia’s trade relationships, potentially leaving a vacuum that China will likely fill with its Belt and Road Initiative.
Despite these potential challenges, Wong believes that Malaysia will continue to navigate these complexities by focusing on its own economic resilience.
Finally, Mohd Afzanizam noted that while Trump may continue his isolationist policies, Malaysia’s emphasis on regional cooperation through initiatives like the Asean Economic Community and the Regional Comprehensive Economic Partnership provides a buffer.
He said Trump may withdraw from multilateral frameworks, but Malaysia has already positioned itself as a key player in regional trade agreements, ensuring that the country remains well-integrated into the global economy.
This article first appeared in The Malaysian Reserve weekly print edition
