Caught in the Crossfire: How Global Trade Wars Are Shaping Malaysia’s Growth

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10 Mar 2025

10 Min Read

Professor Dr Ong Kian Ming, Pro Vice-Chancellor of External Engagement
IN THIS ARTICLE
Portrait for Prof Ong

Written by Professor Dr Ong Kian Ming, Pro Vice-Chancellor of External Engagement at Taylor’s University and former Deputy Minister of International Trade and Industry (MITI), Malaysia. He can be reached at kianming.ong@taylors.edu.my.

On 13 January 2025, the Bureau of Industry and Security (BIS), an agency under the United States Department of Commerce, issued a regulatory framework that restricts the expansion of data centres owned by US companies overseas and limits the sale of high-end Graphic Processing Units (GPU) chips to a list of countries, including Malaysia, Singapore, and Thailand (Tier 2 countries).

 

Although not explicitly stated in the press release, the main purpose of this regulation was to slow down the growth of artificial intelligence (AI) capabilities by Chinese companies, some of which had been procuring high-end GPU chips through overseas entities. A few days later, JP Morgan downgraded some stocks related to the growth of data centres in Malaysia. (This occurred before the sell-off of US tech stocks following the announcement of China-based DeepSeek’s progress in the AI space). This regulatory change illustrates the significant effects that US-China competition can have on other countries, including Malaysia.

Short-Term Gains Amidst a Global Trade War

In the long run, the trade war between the US and China will not benefit open trading nations like Malaysia because it reduces the overall volume of global trade. But in the short term, trade diversion can be beneficial to certain countries, including Malaysia. For example, Malaysia’s total trade volume in 2024 increased by 9.2% to RM2.9 trillion, an all-time high, with record exports to the US and Taiwan.

 

At the same time, Foreign Direct Investment (FDI) inflows into Malaysia have also benefited from multinationals adopting a China+1 approach to risk diversification. Total approved investments reached a record high of RM254.7 billion for the first 9 months of 2024, a year-on-year increase of 10.2%.

Kuala Lumpur elevated Monorail in Chow Kit back lit by sunrise

Economic Benefits for Key Sectors

An increase in trading volume due to global trade tensions will have direct economic and financial benefits for companies and employees in the logistics sector in Malaysia. For example, Port Klang, which comprises Northport and Westport, achieved a shipping volume that elevated its rank to the 10th busiest port in the world, up from 13th place in 2022. The Port of Tanjung Pelepas (PTP) in Johor was the first port in the country to achieve 12 million tonne equivalent units (TEUs) in 2024.

 

Increased investments by foreign multinationals in the country have also raised the number of high wage jobs, especially in higher value-added sectors such as semiconductor, aerospace, and petrochemicals, just to name a few. Of course, the benefits of greater FDI will be better felt in terms of positive spillover effects if the foreign multinational corporations (MNCs) were to localise some of their supply chain and include more Malaysian small and medium-sized enterprises (SMEs) into this ecosystem.

Asian male technician in sterile coverall holds wafer that reflects many different colors with gloves and check it at semiconductor manufacturing plant

If these foreign MNCs were to bring their own supply chains, lock, stock and barrel, from their own countries, the positive spillover effects would be less felt by Malaysian SMEs. Politically, this situation may also not be very tenable in the long run due to the perception that these FDIs do not benefit the ‘locals’, so to speak.

A future-ready workforce needs key skills nurtured early or developed through upskilling. These include critical thinking to extract insights from vast information, effective communication across formats and platforms, and adaptability to new technologies in a changing digital landscape.

— Professor Dr Ong Kian Ming

The Government’s Role in Sustaining Growth

While almost all of the economic activity related to trade and investment is driven by the private sector, the government has an important role to play in catalysing these economic activities, especially through forward-looking and well-thought-out policies.

 

For example, the government can channel infrastructure funding towards roads and bridges that connect our major ports and airports to the highway and rail ecosystem in the country, thereby improving our logistical connectivity. Relevant government agencies, such as the Malaysian Investment Development Authority (MIDA) and the Ministry of Finance (MOF), can provide the necessary incentives to attract targeted MNCs to invest in specific sectors of the economy, like high-end semiconductor or aerospace manufacturing.

Mida Headquater

Photo obtained from Mida.

The Ministry of Education (MOE) and TalentCorp, under the Ministry of Human Resources (KESUMA), can implement the right policies to nurture new talent and upskill existing human resources to make Malaysia an even more attractive place to invest in and build businesses.

Navigating Policy Uncertainty and Future Risks

Malaysia cannot take its current position for granted. Although we are one of the beneficiaries of US-China tensions (along with Vietnam and India), this situation can easily change, especially with greater policy uncertainty under a second Trump presidency. Just two weeks after his inauguration on 20 January 2025, President Trump has already introduced several executive orders that will increase the likelihood of a global trade war, starting with increased tariffs on Canada, Mexico, and China. Sooner or later, countries in Southeast Asia, including Malaysia, will face the threat of increased tariffs.

Strategies for Mitigating Trade Disruptions

What can Malaysia do to mitigate the disruptions associated with a US-backed global trade war? In the short term, Malaysia, as the chair of the Association of Southeast Asian Nations (ASEAN) in 2025, can take the lead in engaging with the US government as an ASEAN bloc, positioning ourselves as reliable supply chain partners for US companies, including in sensitive areas such as semiconductors, critical minerals, and aerospace.

National flags of countries who are member of AEC (ASEAN economic community) on blue sky background

In the medium to long term, we can mitigate such risks by diversifying and strengthening our trade relations with countries outside China and the US, including increase intra-ASEAN and intra-Regional Comprehensive Economic Partnership (RCEP) trade, and expanding our trade outreach.

 

This could involve forging stronger economic partnerships and free trade agreements (FTAs) with Gulf countries (e.g., Malaysia recently signed an FTA with the United Arab Emirates, for example), Latin America via the Southern Common Market (MERCOSUR) bloc of countries, and selected African countries such as South Africa, Kenya, Egypt, and Ethiopia.

Understanding global shifts requires expertise in geopolitics, economics, and strategy. Taylor’s University’s Philosophy, Politics, and Economics (PPE) programme offers a multidisciplinary approach, with insights from Malaysia’s leading experts through the Industry Advisor Panel (IAP) and dynamic industry engagements. Gain the skills and experience to navigate real-world challenges and thrive in an ever-changing landscape.
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