“This may be a more pragmatic solution compared to getting Asean member states to agree on a single policy,” Charles Santiago told FMT, pointing to the differing trade ties member states have with the US.
The three-term former Klang MP said investments into green technology, including by expanding the solar panel ecosystem and boosting food production, could be key to tariff-proofing the country and ensuring future economic resilience.
“By investing and expanding the local economy, the government could better manage or protect the nation from global shocks,” he said.
He also said it would lead to job creation in new sectors, since the tariffs may result in retrenchments and business closures.
Although migrants are expected to bear the brunt of downsizing, locals would eventually also be affected, he said.
Santiago, a political economist, cautioned that governments must keep unemployment low to ensure a stable administration, adding that instability could exacerbate an economic slowdown.
Focussing on food production and boosting local demand would also help reduce reliance on other countries, including China, he said.
Santiago said he found the response given by the investment, trade and industry ministry to the tariffs of 24% announced by US President Donald Trump on Malaysia was inadequate.
He said the solution proposed by the ministry appeared to place too much emphasis on free trade agreements (FTA).
In a statement on Monday, Miti said it would increase utilisation of the country’s existing FTAs, including a comprehensive economic partnership agreement sealed with the UAE to boost bilateral trade and investment, with projections for a 60% increase in trade volume within five years.
Miti also intends to resume FTA negotiations with the European Union and South Korea, and will seek an upgrade of the Asean Trade in Goods Agreement.
Santiago said the US tariffs are intended to force Asian markets to remove non-trade barriers in areas such as government procurement, intellectual property rights, local insurance and digital services, sectors that would benefit US companies.
It is also meant to disrupt China’s dominant role in the supply chain ecosystem, he added.
“This is something that Miti overlooks, which is why focusing on the trade agreements may not be the best way to cushion the impact.”
Domestic demand only ‘part of puzzle’, says economist
Meanwhile Harald Sippel, who has previously written on tariffs and sanctions, agrees that stimulating domestic demand could cushion parts of the economy from external shocks like tariffs.
He said several EU countries implemented the measure at the height of the Covid-19 pandemic.
“But stimulating the local economy is not a complete solution.”
Malaysia, he said, is a highly export-oriented nation, especially in sectors like electrical and electronic products, palm oil and precision manufacturing.
When US tariffs disrupt global trade flows or affect key markets like the EU, domestic consumption alone cannot contain the knock-on effects, he said.
Sippel said the products Malaysia manufactures for export are not consumed locally in significant volume. “There is no way that these billions of exports could suddenly be purchased locally,” he said.
“Boosting demand locally could help some industries, like the food and beverage sector or construction, but the better approach is to diversify supply chains.
“Domestic demand is part of the puzzle, but global positioning and strategic risk management are where the real solutions lie.”