Malaysia wins the US-China trade war

The sharp depreciation of the Malaysian ringgit, comparable in scale to the 1998 Asian financial crisis, surprised many and sparked debate over the country’s economic performance. External headwinds such as continued high inflation in the United States, weak economic prospects in China, and continued geopolitical tensions Important influencing factors. Still, some see the weakening ringgit as a sign of the country’s fiscal deterioration. Decline in competitiveness.

That view is too pessimistic. Major economic indicators are progressing favorably.headline inflation is in decline and the unemployment rate remained steady After November 2023, it was 3.3%, returning to the pre-COVID-19 level. If the government could address some of the country’s systemic structural inefficiencies; second economic takeoff.

The ongoing competition between China and the United States has been further exacerbated by the supply chain disruptions seen during the pandemic, prompting both Western and Chinese companies to reevaluate their sourcing and supply strategies. “China+1” model and “Taiwan +1” The model is a direct response and will benefit Malaysia.Strong interest from multinational companies, such as foreign semiconductor companies, looking to start or expand manufacturing activities that would previously have taken place in China I’m thinking of investing It has increased in Penang.

The semiconductor industry is an example of how Malaysia can capitalize on global trends. During the first period of economic growth, governments had the foresight to introduce incentives to attract specific steps in the semiconductor value chain. Intel opened his first factory in Penang in 1972, and by the early 1980s his 14 semiconductor companies were operating in Malaysia.

This familiarity led to Malaysia. Become It has become an unexpected “winner” in the geopolitical conflict between the United States and China. Semiconductor industry players looked to Malaysia when the need to move other steps in the value chain arose, putting Malaysia in an excellent position to benefit. Growth of the semiconductor industry.Initiatives to create Comprehensive semiconductor strategic plan However, to attract high-value business, it is important to build in the right incentives and create the right business environment.

However, other Southeast Asian countries catch up quickly. In addition to generally having cheap labor, they also provide favorable incentives for companies to invest. To remain competitive, Malaysia needs to strengthen its existing semiconductor ecosystem and move up the value chain.

Initiatives such as the formation of the Penang Automation Cluster in Batu Kawan Industrial Park demonstrate a strategy aimed at providing a one-stop supply chain hub for multinational companies. It will also strengthen knowledge sharing and capacity building for local SMEs and supply chain integration. Low-value tasks, such as assembly, packaging and testing, which make up the majority of sectors in Malaysia, are at risk of being gradually automated or moved to lower-cost locations.

Structural reforms are needed to strengthen the country’s fiscal position to foster catalytic investment, build a high-wage, highly skilled workforce, and strengthen overall public finances. industrial ecosystem. A thriving industrial ecosystem is a prerequisite for moving up the value chain and supports domestic industry. Biggest Announcements for April 2024 Southeast Asia integrated circuit design park It is a testament to the government’s ambition.

Another example is the state of Johor. Johor is ambitious enough to build its own capabilities and capture some of the shipping business, rather than simply serving as Singapore’s port hinterland. In doing so, diversification into logistics services increases economic complexity and improves the state’s attractiveness to investors.Tanjung Pelepas Port free trade area model While facilitating maritime trade, Economic development Through the provision of ancillary services and support.

But competition alone will not achieve a second takeoff. Against the backdrop of the US-China trade war, two major free trade agreements were signed and ratified: the Regional Comprehensive Economic Partnership Agreement and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Malaysia is participating in both. This underlines the country’s commitment to freer international trade.Prime Minister Anwar Ibrahim’s intentions encourage discussion The agreement on the Malaysia-EU Free Trade Agreement further signals the administration’s ambitions to cooperate and partner globally.

More than 140 countries have signed the Global Minimum Tax Agreement, which aims to reduce tax competition between countries. Such a treaty could ultimately reshape the flow of overseas investment by multinationals, with factors such as the quality of the workforce and available infrastructure becoming more important in investment decisions. .

The urgency to address climate change has culminated in a range of initiatives that could have global implications, such as the EU Taxonomy on Sustainable Activities and the ASEAN Taxonomy on Sustainable Finance. Complying with these international requirements is critical for Malaysian industry.

Malaysia must act quickly. The economy already has the ingredients needed to transition to producing electric and self-driving cars, establish artificial intelligence hubs, build more smart factories, and ramp up decarbonization efforts. The mission-oriented approach introduced in Malaysia’s new Master Industry Plan 2030 provides a holistic way to guide channel industry objectives in strategic direction and spark innovation to create solutions that have ripple effects on the economy. Masu. The success of Penang’s semiconductor supply chain can and should be emulated in other sectors.

This article was originally published At the East Asia Forum.

Tan E. Hun is Executive Director of Research for Social Advancement in Kuala Lumpur.

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