S. Birruntha, Azanis Shahila Aman
KUALA LUMPUR: Malaysia should not be overly concerned about President Donald Trump's stern warning on BRICS and tariffs as it does not have a direct impact on the country, economists say.
In a social media post on Saturday, Trump urged the BRICS nations (Brazil, Russia, India, China, and South Africa) not to create or support a new currency to replace the US dollar, threatening a 100 per cent tariff if they do.
This follows Trump's recent proposal to impose significant tariffs on China, Mexico and Canada - countries with which the US has large trade deficits.
Economist Dr Geoffrey Williams felt that Trump was not making a threat of 100 per cent tariffs on BRICS if they have another currency, but he was just stating his negotiation position from a point of strength.
He noted that Malaysia is not a member of BRICS and only holds observer status, so there is no direct effect.
"Also, Malaysia has a large oil and gas sector which trades in the US dollar and this will continue. Bilateral trade in regional currencies will be driven by market preferences. The use of the dollar in trade, investment and finance is a market driven process.
"Companies and countries are not obliged to use dollars for private contracts and they can buy and sell in whatever currency they choose," he told Business Times.
Williams added that the primary goal of the group is not to create a BRICS currency, but rather to focus on trade and investment that is mutually beneficial.
He also stressed that it is neither an economic nor a political union.
"The dollar has only been dominant since the 1970s, just over 50 years, and this dominance is mainly due to its use in major commodities like oil and gas, as well as payments made in dollars by international organisations like the International Monetary Fund and World Bank, and its status as a reserve currency.
"If alternatives emerge from the market, there is nothing the US can do. However, for now, no credible alternatives exist, though this is slowly changing as trade increasingly settles in bilateral currencies.
"Official foreign exchange reserves in dollars have fallen from around 70 per cent in 1999 to less than 60 per cent today," he said.
Universiti Kuala Lumpur Business School economic analyst associate professor Aimi Zulhazmi Abdul Rashid said Malaysia should continue to join and remain a member of BRICS, as there are no clear tariff details imposed by the US yet, and Trump has yet to be sworn in as the 47th president.
He said BRICS offers larger and faster-growing economies than the G7, which is dominated by the US.
He added that many American MNCs are based in Malaysia and export goods back to the US and thus, a 100 per cent tariff, if imposed on Malaysian products, would hurt these MNCs.
"The threat by Trump also highlights the highly competitive nature of world trade and acknowledges that BRICS is not just a simple trade bloc, but a growing trade power with influence in the international market.
"In fact, global trade adopted the US dollar as the global currency after World War II ended, without any strong alternative. The global financial market enforces US dollar dominance, influencing both developed and developing countries' financial markets.
"For example, the US Federal Reserve's execution of its monetary policies, such as raising interest rates to control domestic inflation, has a direct impact on other countries' currencies, including the ringgit," he said.
Aimi noted that BRICS is clearly acting on behalf of many countries that no longer want to be controlled by US monetary policy.
However, he added that a single country may not be able to counter the US dollar's dominance, but a large group like BRICS, with its vast market, abundant natural resources and rapidly growing economies seems to be a reasonable alternative.
"Whether this attempt will be successful is yet to be seen, but the potential is worth exploring after decades of the US dollar's dominance as the global currency," he said.
Echoing similar views, Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said Malaysia should stick to its plans and should not overreact to the news.
He noted that the president-elect will only be inaugurated on Jan 20 next year and based on the current cabinet lineup, Trump has placed Scott Bessent who is currently the hedge fund manager as the next treasury secretary.
"I suppose Bessent would understand the intricacy of the financial markets and economic policies and this would make him the right person to advise the US president on policies that would the best interest of the US.
"The sharp increase of import tariff would raise the cost of importation which then ultimately borne by the US citizens as businesses would pass the additional cost to the consumers. This would potentially slow down the economy," he said.