On 4th of March 2025, US has imposed 25% tariffs on import from Canada & Mexico, and at the same time increased tariffs on China import to 20% from 10% just imposed a month ago.
The stock market reacted negatively as there are lots of uncertainty.
Trump stressed that the tariffs will revive US manufacturing sector and create more jobs, and will not increase the cost of living of its citizens. Is it true?
Anyway, it's almost certain that those countries being imposed the tariffs will suffer, and they will retaliate with tariffs against the US.
In the end, who will win? Or may be there will be no winner?
This makes me think of Malaysia's imported vehicles.
In order to protect Proton and then Perodua, Malaysia's government imposed rather high import duty & taxes on imported vehicles.
This has raised the selling price of imported cars and most Malaysians are "forced" to buy from Proton or Perodua.
This is not necessary a bad thing because it creates lots of job opportunities and helps automotive-related SMEs to grow.
In the end, consumers do not really pay more to own a local car (albeit different in quality from imported ones) and more jobs are created.
Is this what Trump means by creating more jobs without increase in the cost?
In order to protect its EV industry, US has imposed 100% tariff on China's electric vehicle, just like what Malaysia's government has done.
I'm not an economist and I can't predict the outcome of US's tariffs strategy. However, I read that most economists do not agree with Trump.
US is definitely different from Malaysia by many miles. The minimum wages in the US alone is at least 3-4 times higher than Malaysia if I'm not mistaken.
Will products manufactured in the US has the edge in cost compared to the taxed import?
The tariffs are paid by the US importers, not the exporters.
For example, US importer imports a product at USD100 before the tariff and retails it at USD140, and the production cost of the same product in the US is USD120.
In this case, it makes more sense to import the product.
After the 25% tax is introduced, the import cost will increase to USD125. Then it seems better to produce the product in home soil as it is cheaper, faster with less hassle.
In order for the imported products to stay competitive, there might be 3 scenarios.
First, importers bear the cost of the tariff by absorbing part or all of the tariff. The profit margin of importers will drop.
Second, the exporters bear part or all the cost of the tariff by reducing the selling of the products. The profit margin of exporters will drop.
Third, the importers pass the cost to the consumers and resulting in higher retail price. Consumers bear the cost of the tariffs.
In reality, all 3 scenarios could happen at the same time for an imported product. Inevitably the retail price of the product will go up.
It's not that simple in manufacturing a product. It involves hundreds of parts.
For example, to manufacture a TV, not everything can be sourced in a cost-effective way from a single country, such as the screws, plastic chassis, screen, IC board, electronic components etc.
Some raw materials or finished components might still need to be imported and taxed.
Anyway, some products might be more feasible to be produced in the US and some might not.
I know that Scientex and Supermax have set up manufacturing facilities in the US, that means it might be more cost effective to do so..
Almost all stocks fell heavily in the US as well as Bursa Malaysia when the tariff was confirmed. Will the tariffs between US and those 3 countries, especially China, affect Malaysia's listed companies?
If the US reduce the import from China significantly, China might have overcapacity issue and might "dump" the products into the market at lower price. We have seen it with the steel and gloves in the past.
Now the tariffs involve almost all the products from China, including smartphones, computers, small gadgets etc.
US is China's largest export country at USD524.7bil in 2024. If the shipment of tech-related products drop, how will it affect Malaysia's tech companies?
China's major trading partners in 2024 in USD billions (from Wikipedia):
When sales and production of a product in China drop, Malaysia's companies within the supply chain of the product might be negatively affected.
As mentioned earlier, China might sell the product cheap in the market that might reduce the sales and erode the profit margin of local companies selling the similar product.
Nevertheless, China might move more of its manufacturing facilities to Malaysia to evade the tariffs, and benefits certain business sectors in Malaysia, while providing competition to some.
In response to the latest hike in tariffs by the US, China has retaliated with a 10-15% import tariffs mainly on US agricultural products.
Will this affect the corn and soybean price which are important to poultry sector? Will China import more palm oil from Malaysia?
After Canada & Mexico, Trump will probably turn his attention to other countries with high trade deficit, especially in ASEAN region.
US's major trading partners in 2024 in USD billions (from Wikipedia):
No comments:
Post a Comment