Understanding why is the United States imposing reciprocal tariff policy

The following are part of the speech delivered by Wong Chen (PH-Subang) during a special seating at the Dewan Rakyat earlier today:

In my opinion, there are several main reasons why the United States is implementing this extraordinary, very aggressive trade policy, including:

(a) slowing down post-Covid consumer spending and shifting the culture of hyper-consumerism to a culture that prefers to invest;

(b) generating revenue through import taxes to reduce the US fiscal deficit (this is also part of the DOGE program); and

(c) encouraging American multinational companies, such as Intel and Apple, to reopen factories in the United States (onshoring).

However, many experts believe that the main cause of this tariff issue is related to the geo-politics of the United States versus China. History shows that when a country advances and challenges the position of the United States as the leading superpower, the United States will take action, as happened to Japan in the 1980s and 1990s.

Starting in the 1990s, China began to develop until the Beijing Olympics in 2008, where China began to show off its economic prowess and self-confidence. This was followed by the Belt & Road Initiatives policy that expanded its global influence in 2013.

The United States began to try to restrict China with President Obama’s “Pivot to Asia” policy in 2011. From Obama to Trump, then to Biden, and now back to Trump, it is clear that the policy of restricting China continues.

Therefore, this tariff policy is a continuation of that bigger policy. The tariff imposed on China is 145%, and about 90 other countries are subject to tariffs of 10% to 50%. This has created a scenario in which many countries involved are trying to negotiate as quickly as possible with the United States, such as our neighbour Vietnam.

Supporters of President Trump argue that this aggressive tariff policy is the best negotiating tool because it forces other countries to give more trade concessions to the United States. At the same time, they believe that this policy will create an indirect scenario, where other countries will also face the problem of the dumping of Chinese goods.

But many economists believe that this aggressive tariff policy will bring more harm to the United States and will cause a severe economic and financial crisis to the world. Since April 2nd, including the 90-day tariff suspension, the trade, banking, industrial, logistics and energy sectors have all fallen and been disrupted. All countries in the world now need to revise their GDP growth projections and some countries are preparing new policies to avoid economic recession.

Since the end of World War II, the United States has led the world with free trade and globalization policies. The United States also provides stability through the dollar as the reserve currency and the leading global sentiment. But with this aggressive tariff policy, the United States has begun to erode the element of confidence and certainty, and the United States dollar also seems to be falling. However, I believe that the United States dollar is still “the last poker card” in this aggressive policy game.

Tuan Speaker, how should Malaysia approach and deal with this tariff policy? First of all, as a trading nation, we must be neutral and prudent, that is, sensitive to the wishes of the United States and also China. We need to understand the main motives of the United States—even if we do not agree with their ways, we must understand, so that we can anticipate their next steps.

The United States is the largest investor in our country and the quality of the investment is better, namely in the field of technology such as semi-conductors. Malaysia is also embedded in the American technology supply chain. Therefore, we have no choice but to engage the Americans tactfully. As an opening for these negotiations, we can propose strengthening enforcement regarding restrictions on the spread of Artificial Intelligence technology, AI Diffusion, and also resolve to better comply with the Rules of Origin.

At the same time, we must also delve into China’s position and their response to the United States. China is our largest and most loyal trading partner. We should empathize with their position and where possible, we must explore greater but balanced trade with China, including expanding free and fair trade with China. There is also great potential for Foreign Direct Investments from China, but before that, we need to ensure that the United States will focus only on the issue of Rules of Origin and Local Content Requirements, and not mix in other issues such as share ownership.

Given Malaysia’s unique position as a recipient of high-quality investment from the United States and at the same time, having the largest trading relationship with China, I sincerely see Malaysia’s role as an honest broker to these two superpowers.

Tuan Speaker, let me turn to the issue of Malaysia’s competitiveness compared to our neighbours and also to ASEAN. When the United States announced tariffs, Malaysia was charged a tariff of 24%, a high rate but lower than most regional neighbours, except for Singapore (10%) and the Philippines (17%).

Several neighbouring countries that strongly compete with us have been charged higher tariffs such as Indonesia (32%), Thailand (36%) and Vietnam (46%). We need to be aware that if these tariff rates continue, we may have a pricing competitiveness advantage, but we also need to understand that the US market will also ultimately shrink. Therefore, we should not be swayed and trapped by these rates because they will change.

ASEAN countries are already racing to negotiate lower tariffs, including Malaysia. As ASEAN chair, we have a responsibility to lead the region and present a position. The best position is to establish a set of ASEAN principles on tariffs, and then share the strategy and results of the negotiations. We also need to formulate a united stance for common commodities such as palm oil, while allowing each ASEAN country the flexibility to negotiate for its own unique goods and services.

Moving forward, Malaysia must diversify its trading market to as many countries as possible and more quickly to finalize more FTAs. We need to strengthen our negotiating capabilities, have more trade lawyers, and have a clear economic direction for the future. Clarity of an economic vision will allow us to choose and pursue the type of trade we need and want.

The economic vision I see for the next two to three decades is a shift from our country’s dependency on oil, gas and palm oil to renewable energy, biomass, carbon credits and green technology industries based on rare earth elements. We must also continue to upgrade our ability to be a good and trusted host to leading global companies, particularly in the AI ​​sector, so that we remain at the forefront and have access to this highly transformative technology.

These unexpected tariffs, imposed on the world of trade, are a test of our own resilience and capacity. We need to see these challenges as opportunities to continue to reform, reduce the national debt, eliminate waste and corruption, and reevaluate the subsidy system. Failure to address all of these issues quickly will expose the country to future crisis—and under President Trump, anything can and will happen.