Possible but unlikely Malaysia will gain from US-China trade war, say analysts

A labourer works inside an electronics factory in Qingdao, Shandong province in China January 29, 2018. ― Reuters pic
A labourer works inside an electronics factory in Qingdao, Shandong province in China January 29, 2018. ― Reuters pic

KUALA LUMPUR, May 26 — New competition to Malaysia as a manufacturing destination means the country is not poised to profit in the event the US-China trade war escalates, according to analysts.

With the worsening trade row fuelling expectations that Chinese manufacturers may relocate to avoid any retaliatory tariffs the US may impose on China, Malaysia is among the countries expecting to reap the benefits.

Singapore Institute of International Affairs senior fellow Oh Ei Sun agreed that Malaysia, in theory, could stand to enjoy more direct investment and job creation if Chinese firms decide to shift here.

“However, the country of first choice for such relocation, if any, is not Malaysia but Vietnam as Vietnamese workers are perceived to possess higher productivity and are more willing to accept lower wages.

“So, in practice, we are unlikely to be the beneficiary of such relocation,” Oh said.

He also said Malaysia will also not enter into consideration unless local productivity levels increase significantly.

To support this, Oh pointed out that even Prime Minister Tun Dr Mahathir Mohamad has urged Malaysians to adopt better work ethics to avoid being eclipsed by competition such as from Vietnam.

He also said the government’s revival of the “Look East” policy was centred on encouraging Malaysians to adopt the industriousness of the Japanese and not so much about taking up the country’s technology and expertise.

“A common investor observation is that even if the company owner is willing to pay double overtime to rush out shipments, workers (here) are unwilling to work longer hours. A Vietnamese worker would die to earn more,” he said.

The country’s abundant resources vis-a-vis its population size has also fuelled complacency in the country, Oh asserted.

Separately, University of Tasmania’s director of Asia Institute Tasmania James Chin expressed similar views that Malaysia would likely be passed over in the event of a worsening US-China trade war.

However, Chin predicted that the tensions between the two superpowers were unlikely to break out into a full-scale trade war that would force Chinese factories to shift base.

“In fact, a trade deal will be done soon, before next year’s US presidential election. So Malaysia will not benefit at all,” he asserted.

Like Oh, he also noted that countries such as Vietnam and Cambodia were now the preferred manufacturing destinations in the region, courtesy of low wages in both.