Report: Malaysia among 'most exposed' in US-China trade war spillover

Malaysia is among the countries at risk of suffering the worst effects of the ongoing trade war between China and the US, according to Bloomberg.

"(Bloomberg economist Maeva Cousin's) analysis shows the worst blows from a drop in China’s exports to the US would fall on Taiwan, South Korea, and Malaysia – all embedded in Asia’s export supply chain," said the report published today.

The analysis, which is based on 2015 data, shows that 0.7 percent of Malaysia’s industrial output is tied up in the supply chain churning out China exports to the US – mostly computers, electronics, and electrical products.

Apart from mainland China itself, Malaysia is third behind Taiwan (1.6 percent) and South Korea (0.8 percent).

This means that when China's exports to the US fall as a result of tit-for-tat tariff hikes, all three will be left exposed to its global spillover effects.

On the flipside, Malaysia is also exposed to the effects of a drop in US exports to China, albeit to a lesser extent, with only 0.06 percent of industrial output going into manufacturing US goods destined for China.

In this case, the worst-hit countries would be the US' neighbours Canada and Mexico.

"Though as a share of total output, the exposure is smaller than is the case with China’s Asian neighbours," Bloomberg said.

The report also predicted that at current tariff rates, the GDP of China and the US would fall 0.5 percent and 0.2 percent respectively, and cause a reduction in global GDP output.

If the trade war escalates to cover all trade between China and the US, the drop in GDP is expected to be 0.9 percent for China, 0.7 percent for the US, and 0.6 percent for the world in mid-2021.

“If tariffs expand to cover all US-China trade, and markets slump in response, global GDP will take a US$600 billion (RM2.5 trillion) hit in 2021, the year of peak impact,” the report said.

On May 10, the US escalated the trade war by raising tariff rates for US$200 billion (RM837 billion) worth of Chinese exports from 10 percent to 25 percent, after a similar hike for US$50 billion (RM209 billion) worth of electronics imposed earlier.

China responded in kind with five to 25 percent tariff hikes for certain US goods.

The US had also threatened further escalation of the trade war by imposing a 25 percent tariff on all Chinese imports.

The tit-for-tat reportedly came after talks broke down between the two superpowers on a range of trade issues, such as intellectual property and currency manipulation.