KUALA LUMPUR, Oct 3 — Credit rating agency RAM Ratings expects Malaysia’s exports to slow amid uncertainties from the ongoing trade war between China and the US.

RAM Ratings said in a statement today that it projects Malaysia’s export growth to decelerate to 3.3 per cent in August compared to 9.4 per cent in July.

It said that the slowdown is mainly attributable to prevailing cautious sentiment in world markets emanating from the trade imbroglio between China and the US.

"On August 23, both the US and China imposed a second round of import tariffs with those by the US especially pertinent to Malaysia given the impact on the semiconductor sector,” said RAM Ratings in the statement.

Electrical & electronic (E&E) products made up 36.7 per cent of Malaysia’s total exports in 2017.

RAM Ratings said the risk to trade momentum was further accentuated when the US imposed a third round of tariffs on Chinese imports valued at RM200 billion on September 24.

At 10 per cent initially, this rate is set to increase to 25 per cent in January 2019.

While global trade faces a slowdown in momentum, Malaysia stands to benefit from the trade diversion effect of E&E which could boost overall export demand.

Malaysia is highly competitive in terms of revealed comparative advantage (RCA) and stands to benefit from the trade diversion from the US’ second round of tariffs (23 August 2018) on China, which place focus on semiconductors.

"Electronic components under both US and China’s set of tariffs, respectively, constitute 6.8 per cent and 16.4 per cent of Malaysia’s overall exports, with correspondingly strong RCAs of 1.38 and 1.50,” said Kristina Fong, RAM’s Head of Research.

However, Malaysia still faces stiff competition from other markets in the region, such as Vietnam and the Philippines, which have higher RCAs for this group of products — which may dilute some of these potential gains.