Implications of Trump's Tariff Threats
President-elect Donald Trump's fiery rhetoric about imposing 100 per cent tariffs on BRICS nations (Brazil, Russia, India, China, and South Africa) and his opposition to a potential BRICS currency to challenge the U.S. dollar may seem like grandstanding.
However, these statements have broader implications for global trade and economic dynamics that Malaysia, though not a BRICS member, cannot ignore. While Malaysia's observer status in the BRICS bloc shields it from immediate consequences, the ripple effects of Trump's threats could significantly alter the global economic landscape, presenting both challenges and opportunities for the country.
The US Dollar's Enduring Dominance and Emerging Challenges
The US dollar has long been the cornerstone of global commerce, underpinned by trust in its stability.
While Malaysia's trade, especially in oil and gas, continues to be dollar-denominated, the BRICS nations' efforts to explore alternatives highlight the possibility of a gradual shift away from the dollar.
Historically, the dollar's dominance has been eroding slowly, with its share of official global reserves dropping from 70 per cent in 1999 to under 60 per cent today. However, no viable replacement has yet emerged.
The idea of a BRICS currency remains speculative due to the bloc's lack of economic and political unity and the immense logistical challenges of creating a rival to the dollar. For Malaysia, this means maintaining a pragmatic approach - leveraging existing trade dynamics while preparing for a future where bilateral trade in regional currencies might play a larger role.
By adopting a diversified and flexible approach, Malaysia can reduce overdependence on any single currency or trade partner, safeguarding its economic stability.
Malaysia's Neutrality as Strategic Advantage
Malaysia's non-aligned stance in global geopolitics has served it well, enabling the country to maintain strong ties with both the U.S. and BRICS nations. This neutrality allows Malaysia to avoid being caught in the crossfire of potential trade wars while exploring trade opportunities with all major global players.
As an observer of BRICS, Malaysia has the freedom to explore collaboration with the bloc without being entangled in its geopolitical dynamics. At the same time, its strategic partnership with the US ensures continued economic and diplomatic benefits.
Balancing these relationships will be crucial as the global economic order evolves.
Trump's Tariff Threats: Bluff or Reality?
Trump's proposal to impose 100 per cent tariffs on BRICS nations is widely seen as more rhetorical than practical.
Legally, such tariffs would face significant challenges under World Trade Organisation (WTO) rules, and their implementation could provoke severe retaliation from BRICS nations. A full-blown trade war would hurt US consumers and businesses the most, driving up import costs, reducing corporate profits, and triggering inflation.
For Malaysia, the indirect consequences of a US-BRICS trade war could include disruptions to global supply chains, market volatility and reduced demand for its exports in affected regions.
Nonetheless, Trump's threats also underscore the need for Malaysia to bolster its economic resilience by diversifying trade and investment partnerships and reducing reliance on any single market.
Potential Economic Fallout
If Trump's tariff threats materialize, U.S. multinationals operating in Malaysia could face higher export costs, potentially affecting local operations and employment.
Moreover, the secondary effects of a U.S.-BRICS trade conflict could ripple through global markets, indirectly impacting Malaysia's economy. However, Malaysia's well-established fundamentals - such as its diversified trade portfolio and status as a regional trade hub—provide a strong buffer against external shocks.
By continuing to invest in high-value industries like technology and green energy, Malaysia can further insulate its economy from global trade disputes.
Navigating the Shifting Global Economic Order
The deeper implications of Trump's rhetoric lie in the broader shifts occurring in the global economic order. The push by BRICS nations to reduce dollar dependence reflects growing dissatisfaction with the US-led financial system.
While these efforts are unlikely to dethrone the dollar in the near term, they signal a gradual
movement toward a more multipolar world economy.
For Malaysia, this transition presents both risks and opportunities. On one hand, it underscores the need for Malaysia to remain agile and proactive in adapting to new trade dynamics.
On the other hand, it opens avenues for Malaysia to strengthen trade ties with emerging markets, particularly within the BRICS bloc, and to explore regional currency settlements that reduce exposure to exchange rate volatility.
Strengthening Regional and Multilateral Engagement
Malaysia's active participation in Asean and other multilateral forums provides a platform to safeguard its trade interests while maintaining a neutral stance.
These engagements can also help Malaysia build consensus on regional trade policies and economic cooperation, positioning it as a key player in shaping the future of global commerce.
In addition, Malaysia's commitment to multilateralism and diplomacy can enhance its credibility as a reliable partner in international trade, attracting investment and fostering economic growth.
By promoting initiatives that align with global trends, such as sustainability and digital transformation, Malaysia can ensure its continued relevance in an evolving global economy.
Diversification as the Key to Resilience
Malaysia's economic strategy should prioritise diversification - both in trade partnerships and in industrial development. Expanding trade with BRICS nations while deepening ties with the US can reduce Malaysia's vulnerability to external shocks.
Similarly, investing in high-value sectors such as technology, renewable energy and advanced manufacturing can create new growth drivers that are less susceptible to global trade disputes.
At the same time, Malaysia should explore opportunities for regional currency trade where practical. This can help reduce its reliance on the dollar while supporting broader efforts to strengthen regional economic integration.
However, such initiatives should be pursued cautiously to avoid overcommitting to any single bloc or currency.
Trump's Approach: A Double-Edged Sword
Trump's tariff threats highlight the paradox of his protectionist policies. While they aim to project strength, they often expose vulnerabilities within the US economy.
Imposing steep tariffs on BRICS nations could backfire by driving up prices for US consumers, reducing spending power, and triggering retaliation that hurts American exporters.
For Malaysia, this serves as a reminder of the interconnected nature of the global economy. Protectionist measures in one part of the world can have far-reaching consequences, reinforcing the need for Malaysia to stay adaptable and forward thinking in its economic planning.
Preparing for the Future
As the global economic landscape continues to shift, Malaysia must remain agile and resilient.
By strengthening its trade ties, diversifying its economy, and actively engaging in multilateral forums, Malaysia can navigate the challenges posed by Trump's tariff threats and other global uncertainties.
While Trump's rhetoric may not pose an immediate threat to Malaysia, it underscores the importance of staying prepared for a rapidly changing world.
By adopting a proactive and pragmatic approach, Malaysia can secure its place as a dynamic and influential player in the global economy.
In conclusion, Malaysia's observer status in BRICS and its strategic neutrality position it well to adapt to the evolving global economic order. By focusing on resilience, diversification, and diplomacy, Malaysia can turn challenges into opportunities and chart a course for sustainable growth in an increasingly interconnected world.
*The writer is an adjunct lecturer at Universiti Teknologi Petronas, international relations analyst and a senior consultant with Global Asia Consulting. He did his graduate studies at Macquarie University in Sydney, Australia.