RAM Ratings expects Malaysia’s trade growth to accelerate in May despite worsening US-China trade relations then

Published on 03 Jul 2019.

Share Tweet Email

RAM Ratings expects Malaysia’s trade growth to gain more momentum in May, despite the escalated import tariffs between the US and China that same month. The healthier estimated export growth of 4.0% in May (April: 1.1%) is partly attributable to the frontloading of shipments ahead of the Hari Raya festive holidays in June. Import growth is also estimated to rise to 6.8% in May (April: 4.4%), primarily due to low-base effects amid slower imports around the time of the 14th General Election in May 2018. Overall, Malaysia’s trade surplus is projected to come in at RM6.3 bil in May.

The much-awaited meeting between Presidents Trump and Xi at the G20 Summit in late June has led to a truce, thereby facilitating the resumption of trade negotiations. Although the details of this truce have not been fully defined, a pause in the imposition of tariffs on the final group of Chinese imports into the US and a review of the ban on Huawei are on the cards. “Despite this, uncertainties are set to continue given the lack of concrete details on the timeline for the latest round of negotiations, the question of what Huawei-related restrictions will be eased, and the immediate steps China has to take to stave off tariff increases. As such, the observable trade-diversion effects to date, in the form of diverted trade flows and FDI flows, may even become more pronounced as this situation persists," observes Kristina Fong, RAM’s head of research.

While the resumption of trade talks is a welcome development, the dispute has already disrupted global trade patterns as firms seek alternative sources of imports. Analysing the import sources of the US and China in 4M 2018 and 4M 2019, both countries’ shares of imports from each other have declined significantly. Over the same period, the US’s imports from China shrank 2.6 percentage points while China’s proportion of imports from the US diminished 2.4 percentage points y-o-y.

On the other hand, the import disruptions experienced by the US and China have yielded trade-diversion opportunities for major Asian economies. In particular, the regional supply chain has benefitted the most from stronger American demand, with Vietnam the biggest beneficiary. This is highlighted by Vietnam’s exports to the US, which augmented 4.0 percentage points to 22.6% of Vietnam’s overall exports in 4M 2019. Other countries which also enjoyed notable increases in their shares of exports heading to the US include Thailand (+3.0 percentage points) and Taiwan (+2.8 percentage points). Malaysia gained too from trade diversion, despite its relatively stable y-o-y share of exports to the US and China in 4M 2019, as Malaysia’s diversified exports mask some trade-diversion benefits. The nation still chalked up gains in exports to both economic giants in terms of goods affected by their import tariffs, particularly Malaysia’s export of miscellaneous manufactured products to the US and mineral fuel to China.


Analytical contact
Woon Khai Jhek, CFA
(603) 3385 2512

Media contact
Padthma Subbiah
(603) 3385 2577


The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2019 by RAM Rating Services Berhad

Publication Date Published Category
Economic Insight: May 2019 Foreign Trade 03-Jul-2019 Economic Insight View PDF