ONE of the reasons cited by US President Donald Trump in increasing trade tariffs with Malaysia is that the balance of trade has been in Malaysia’s favour for many years, and that the Malaysian government has not seriously addressed the problem.
Trump had expressed hopes that higher tariffs could redress the situation and expects Malaysia to purchase a more wider range of American goods and products.
Many nations too have lopsided balance of trade with the US and this is one of the reasons for the much-feared Trump’s tariffs worldwide which will begin to be implemented from Aug 1.
Numerous countries have taken advantage of the large unrestricted open US market to increase exports exponentially but buy back less in imports leading to an unfavourable balance of trade.
The US has lost out to many countries in the trade of agricultural and manufactured goods as well as services. This is the reason why the US is now the world’s biggest debtor nation.
Many American multi-national have also added to the problems by opening new manufacturing centres outside the US to take advantage of lower labour costs and other incentives and exporting their products to the US for higher profits.
This has led to the famous ‘rust belt’, a vast number of US factories that had been shuttered down due to economic changes. This became a major socio-economic issue during the presidential elections.
The range of products and services the US depends on worldwide especially from the European Union (EU) and Asean countries has increased manyfold over the last few decade and is straining the US economy with the huge range imports which are not matched with imports by these countries.
This has been cited as one of the reasons for the much talked about decline of the US as a superpower. Trump is imposing punitive tariffs on nation he feels are restricting US imports through restrictions, regulations and import substitution.
The entry of China as a big time trading nation has upset the balance of trade internationally. China’s economy of scale has led to cheaper and competitive prices and many nations have lost their erstwhile monopoly.
Previously, Malaysia trade with the US was more balanced as Malaysia used to buy a large range of manufactured products and other goods and services from the US. However, the situation has drastically changed when China began flooding its products in Malaysia. This led to Malaysia buying less from not only the US but also the EU, among others.
Malaysia often lauds its favourable trade balance as an economic achievement and advantage but does not take into account the disadvantage it causes to others. For a healthy trading relationship there should not be a very wide gulf or deficit between trading partners.
Another country with a perennially lopsided balance of trade with Malaysia is India. India has had an unfavourable balance of trade with Malaysia for decades.
India is Malaysia’s largest importer of palm oil and is one of the main countries Malaysia considers to sell off any glut arising in palm oil. This enables palm oil prices to be kept high and well above production costs.
The palm oil sector has been one of the most profitable and Malaysia reaps billions of ringgit due to high prices fuelled by large scale imports by India.
In fact whenever palm oil exporters get wind of prospective large scale purchase of palm oil from India due to domestic vegetable oil shortage or demand for festivals many of these exporters and speculators jack up the prices.
The situation became so exploitative more than a decade ago when India decided to have a more stable palm oil pricing with a government to government arrangement with Indonesia.
Needless to say Malaysia-India trade ties need to become more balanced and fair to both sides. Malaysia needs to import more from India considering the presently wide range of manufactured as well as tradition products from India.
Indian investors and businesses need to reciprocate by increasing their economic activities in Malaysia and their involvement in the IT and related sectors is one way to improve the balance of trade.
The Malaysian Indian community should look into good investment opportunities in Tamil Nadu as the government is providing various incentives for export-related manufacturing for small and medium enterprises (SMEs) and larger firms.
Alternatively, joint ventures between India and Malaysia need to be increased .This will also help redress the gap between imports and exports.
Governments worldwide need to ensure that the balance of trade is fair and amicable for both sides and ensure that exploitative restrictions, over-regulation and domestic discrimination as well as unfair practices do not lead to countries reacting with higher tariffs and taxes.
Trump’s tariffs show how the US now unilaterally reacts to stop the disadvantages to the US economy. He has shown the way as to how to redress unfavourable trade balances with tariffs and other restrictions to save a country’s economy.
Tariffs will be a feature of the future with more nations feeling they are being exploited through unfair and discriminatory trade practices. Suffice to say, the days of unrestricted open markets are officially over. ‒ July 22, 2025
V. Thomas is a Focus Malaysia viewer.
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
Main image: AFP/Andrew Hanik
