Many people have accused Donald Trump of playing games over tariffs and trade and they are right. He is playing games, and he is winning.
The Trump Tariff game runs like this. The President says the US has a structural trade deficit with too many countries which has lasted for decades. This is true.
He then says that at least part of this is due to restrictive trade practices, including tariffs and non-tariff barriers to trade (NTBs). This is true.
Rather than conduct a forensic audit of millions of regulations, charges and fees across 185 countries, which would be impossible, he simply calculates the trade deficit ratio, assumes that around half is due to trade barriers and imposes a reciprocal tariff at that discounted rate.
He then shocks the world by imposing these tariffs overnight but offers an option to negotiate a reduced tariff based on removing trade barriers and moving toward free trade. This worked!
Within a week 75 countries have come forward to negotiate the removal of trade barriers.
If the European Union (EU) is taken as 27 countries rather than a single entity and if Canada and Mexico are included, then 104 countries, out of the 185 that are subject to reciprocal tariffs, are now actively engaged in free trade negotiations to be completed within 90 days.
In other words, Donald Trump has made more progress toward ending trade restrictions in one week than the World Trade Organization (WTO) and its predecessor the General Agreement on Tariffs and Trade (GATT) achieved in 78 years since GATT was established in 1947.
The 90-day pause is a goodwill gesture from the US to allow negotiations to take place. If it is misused to delay or resist changes there is a risk of the full implementation of the reciprocal tariffs or even higher tariffs as happened in Canada and Mexico.
So, it is a pivotal opportunity for Malaysia to make positive changes toward free trade and market access either bilaterally or in coordination with Asean.
Malaysia will have a tougher time dealing with NTBs than with tariffs. The NTBs are always the most difficult to negotiate, as the EU-Malaysia FTA shows but as with Tesla they can also be resolved quickly.
The average tariff on US imports to Malaysia is around 5.6%, below even the baseline US tariff of 10%. These tariffs could be reduced or removed straightforwardly.
By contrast Malaysia’s non-tariff barriers are complicated. They include approved permits, product standards, halal regulations, compliance costs, local procurement requirements and restrictions on government procurement including Bumiputera ownership rules for suppliers.
Other barriers that are also difficult to navigate include preferred vendor schemes for GLCs, subsidies for local suppliers, foreign worker recruitment, and sectors restricted to local companies or entrenched monopolies, cartels and vested interests.
The 90-day reprieve should help Malaysia clarify and focus on areas of concern to the US and other countries and remove non-tariff barriers in a comprehensive way.
The negotiations must start with a list of the US concerns, many of which are shared by other countries, and then focus on those things that can be removed quickly, those that will take time because they are gazetted laws and regulations and those where there may not be room for changes such as in government procurement.
If Malaysia can negotiate a reduction in reciprocal tariffs either bilaterally or through Asean then the issue can be quickly resolved but it is non-tariff barriers that are the main obstacles now.
The world will benefit if there is an amicable removal of trade barriers and a move to free trade, and Malaysia must lead that process. - FMT
The views expressed are those of the writer and do not necessarily reflect those of MMKtT.
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