RAM’s Trade Unpacked Series: Global trade malaise and US tariffs on E&E will pressure Malaysia’s growth

Published on 18 Apr 2025.

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RAM Ratings has published the first part of its limited series report, Trade Unpacked to analyse the impact of the ongoing global trade war and Trump tariffs on Malaysia. 

The biggest risk to Malaysia’s overall trade performance would come from the E&E sector. The US is a major importer of Malaysian E&E, circa 20% of Malaysia’s overall E&E exports and 7.9% of the country’s total exports. Of this, about 38% of Malaysia’s E&E exports to the US (mostly semiconductors) are tariff-exempted for now but are undergoing current review. Assuming the blanket 10% tariff is maintained, this will shave off approximately 0.6 percentage-points (ppts) from Malaysia’s growth, while a 24% tariff rate would take off an additional 0.3ppts. 

Sector-wise, apart from E&E, exporters of furniture, recreational goods, apparel, and rubber products are most at risk from reciprocal tariffs as over a fifth of exports in these categories are shipped to the US. However, the impact on Malaysia’s total trade is limited given the top 10 US-dependent exports collectively account for only 2.2% of Malaysia’s total exports. Similarly, the 25% sector-specific tariffs on imports of ‘steel and aluminium’ and ‘automobiles and parts’ would weigh on these sectors but would not significantly dent trade performance as these make up only around 0.3% of total exports. 

Malaysia will also need to counter the spillover effects from the trade war, the most significant being the risk of a slower Chinese economy given the whopping 145% US tariff. As China is one of Malaysia’s largest trade partners, we estimate a 1% slowdown in Chinese demand could crimp 0.08ppts from Malaysia’s growth, ceteris paribus. However, there are opportunities for Malaysia in the form of trade diversion and substitution of higher-tariffed products from other countries. The ongoing tech upcycle is also another counterbalance against slower US demand, although future tariffs could potentially dampen sentiments.

We have revised Malaysia’s GDP growth to range between 3.5%-4.5% this year, down from our previous forecast of 4.0%-5.0%. Much of the outlook also depends on the tariff negotiations, and counterbalance and regional trade initiatives that could materialise in the near to medium term. In terms of monetary policy direction, we anticipate OPR to stay at 3.00%, unless growth is at risk of dipping below 3.5%. Meanwhile, the Ringgit is expected to strengthen from last year as the US Federal Reserve slashes the federal funds rate to spur economic growth. We predict USD/RM to average between 4.35-4.45 in 2025 (2024: 4.58).

RAM’s report series Trade Unpacked is available for download at www.ram.com.my

 

Analytical contacts Nur Nadia Mazlan  (603) 2708 8287 nadia@ram.com.my		Media contact Sakinah Arifin (603) 2708 8212 sakinah@ram.com.my
Woon Khai Jhek, CFA  (603) 2708 8286 khaijhek@ram.com.my

 

About RAM Rating Services Berhad (RAM Ratings)

Established in 1990, RAM Ratings is a leading credit rating agency registered under the Securities Commission’s Guidelines on Credit Rating Agencies. In addition to the provision of credit ratings for corporate bonds and sukuk and their issuers, RAM Ratings also provides research and publications on Islamic finance, fixed income and macro-economic and industry analysis as well as data analytics relating to credit risk, counterparty assessments and other related domains. 

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