Trump's return to office after a tight race has stirred significant shifts in the US market.
With Republicans now controlling the Senate and holding a slim majority in the House, Trump's policies could see swift action if Republicans achieve a full sweep; if not, a divided Congress may create gridlock, adding volatility and uncertainty.
Trump's agenda centres on high tariffs, tax cuts favouring the wealthy, and tougher immigration controls—policies expected to drive up prices, expand fiscal deficits, and reduce labour availability, with potential implications for inflation.
In foreign policy, his focus may shift away from Ukraine toward the Middle East, adding fresh dimensions to geopolitical tensions.
For Malaysia, Trump's policies could introduce trade disruptions, especially with Malaysia's high export dependency. His protectionist tariffs on Chinese goods could impact Malaysia indirectly, especially if he withdraws from the Indo-Pacific Economic Framework (IPEF), which may hinder trade flows just as multilateral supply chains are taking shape.
A stronger USD, backed by a potentially cautious Federal Reserve reluctant to cut rates amidst fiscal expansion, could pressure the ringgit, possibly pushing it down to 4.57/USD by the end of 2024. Rising US borrowing costs may ripple through global interest rates, affecting Malaysia's bond market as well.
Key policies and anticipated impact on Malaysia
Trump's trade approach includes steep tariffs—up to 60 per cent on Chinese imports and 10-20 per cent on goods from other countries—which, while aimed at shielding US industries, may drive consumer prices up, squeeze retail profits, and invite retaliatory trade measures that could harm US manufacturing.
His tax cuts, primarily benefiting high-income earners and corporations, could increase deficits while providing a temporary boost to consumer spending.
Immigration restrictions focused on deportations and reducing legal entry may strain labour availability in key sectors, elevating wages and inflation but limiting productivity.
In Malaysia, Trump's trade agenda poses significant risks, especially if the US withdraws from IPEF, which could stall progress in establishing new trade ties. With Malaysia's electronics sector deeply integrated into global supply chains, heightened trade uncertainties could stymie export diversification.
However, Malaysia could benefit from investment shifts if US-China tensions persist, as seen in the 2018 trade dispute's aftermath. To mitigate these risks, Malaysia might strengthen regional trade alliances and enhance resilience to geopolitical changes.
Currency and interest rate impacts are also crucial. Trump's fiscal expansion and likely USD strength could pressure the ringgit, with an expected dip to 4.57/USD by late 2024 and possible recovery to 4.45/USD if tensions ease in 2025. Rising US Treasury yields could influence global rates, pushing up yields on Malaysian Government Securities (MGS) and encouraging capital outflows as investors seek safer US assets. If the Fed responds cautiously to Trump's fiscal expansion, it may limit favourable yield spreads, compounding challenges for Malaysia's bond market.
Even though many of Trump's policies might take effect by late 2025, market reactions could start earlier as investors brace for trade and fiscal policy impacts.
Should Republicans fully back Trump's agenda, they may still face resistance from fiscal conservatives wary of unchecked spending. Regardless, investors will likely position for a stronger fiscal stance, driving potential volatility across global markets as they adjust to a more assertive US policy direction under Trump.
Trump-proofing
The world is bracing for a new era of volatility as the U.S. election ushers in a potential Trump comeback, sparking a wave of "Trump-proofing" measures across economies. With Trump's proposals for tariffs, tax cuts, tighter immigration, and a sharp pivot in foreign policy, countries are recalibrating to protect themselves from potential disruptions to trade, currency stability, and geopolitical relationships.
This global reshuffling underscores a pressing question: how can economies shield themselves from Trump-era headwinds while finding new pathways to resilience?
First, Asia is doubling down on regional trade alliances, with frameworks like the Regional Comprehensive Economic Partnership (RCEP) and Asean becoming critical lifelines. Malaysia, for instance, stands to benefit by strengthening intra-Asian trade ties to reduce its dependency on U.S.-focused supply chains. By deepening these alliances, countries are aiming to blunt the impact of any U.S. retreat from initiatives like the Indo-Pacific Economic Framework (IPEF) while leveraging Asia's growth to sustain exports.
Countries are also fast-tracking efforts to diversify export markets.
With Trump's tariffs potentially targeting a wide swath of goods, Malaysia and others are expanding their reach into Latin America, Africa, and the Middle East, hedging against any single-market shocks.
The message is clear: diversify now to soften the blow of future U.S. trade restrictions.
Financial stability is another priority as countries brace for a strong dollar that could drain capital from emerging markets.
To counter potential ringgit volatility, Malaysia may have to recalibrate interest rates and reinforce its currency reserves. Such moves will help insulate local markets from the lure of a strong U.S. dollar, drawing a line of defence against any Trump-fuelled capital outflows.
As trade frictions rise, economies are focusing inward, boosting local industries and domestic demand. Malaysia is doubling down on strategic sectors like tech, pharma, and agriculture, cultivating a homegrown resilience to weather global supply shocks.
Investing in local consumer markets will ensure a buffer when external demand gets shaky.
Geopolitics, too, is shifting as nations recalibrate diplomatic strategies. Trump's potential U.S. foreign policy pivots toward Ukraine and the Middle East have countries rethinking their alliances.
Malaysia and its Asian neighbours are stepping up their balancing act, strengthening ties with global powers like China, Japan, and the EU to maintain leverage in a more polarised world.
Bond markets are also in for a shakeup, as rising U.S. yields could ripple across emerging markets, straining government debt. To stay ahead, Malaysia is shoring up investor confidence and broadening its local investor base, creating safeguards against financial instability.
Finally, with Trump's restrictive immigration policies likely to crimp U.S. workforce availability, countries like Malaysia see an opportunity to attract talent and skilled workers who might have otherwise chosen the U.S.
Proactive immigration policies will help countries close labour gaps and foster innovation while absorbing the talent flow diverted by a U.S. immigration clampdown.
The new reality is one of recalibration.
From trade ties to financial policy, Malaysia and the world are bracing for the "Trump effect"—an era where resilience is about more than survival; it's about creating new foundations in a fast-changing global landscape.
Economist Samirul Ariff Othman is an adjunct lecturer at Universiti Teknologi Petronas, an international relations analyst, and a senior consultant with Global Asia Consulting.