【Exclusive】The impact of the tight US presidential election on the uncertain, and Malaysia's economy is going smoothly?

Author: toby siew

The 60th US presidential election will kick off on November 5th this year. At that time, the Republican Trump and the Democrat Harris will compete for the US presidency.

Due to its leading global position in economy, technology, and military power, coupled with the significant role of the US dollar, this election is not a domestic affair of the United States alone, but a crucial subject affecting global political and economic changes.

As for Malaysia, due to the close economic and trade ties with the United States over the years, it cannot remain indifferent and must closely monitor and consider the changes in this election, strategically positioning for opportunities and risks early.

What impact will the tight US presidential election have on Malaysia's economy? After discussions with political and economic experts, and comprehensive analysis of various data, "Nanyang Business Paper" will dissect it for readers.

On November 5 of this year, the United States will welcome the 60th presidential election. This election is being closely watched globally, and Malaysia is no exception.

What potential impacts will this election bring to Malaysia? What should the political and business communities as well as investors pay attention to?

As time passes, the presidential race intensifies. The representative sent by the Republican Party is the former president, Trump, who is known for his exaggerated and sharp language.

During his presidency from 2017 to early 2021, Donald Trump also left a strong mark on American politics, society, and the economy by initiating a trade war with China and significantly reducing the number of immigrants admitted.

In the latest election, Trump remains as outspoken as ever.

On the trade issue, he threatens to impose at least a 10% tariff on all goods, and on goods from China, a 60% or higher tax; on financial matters, seeing the trend of de-dollarization intensifying, Trump also warns of imposing a 100% tariff on countries that 'move away' from the U.S. dollar to defend its position, causing global tension.

The Democratic candidate is the current Vice President, Kamala Harris (Kamala Harris.Compared to Trump, He Jinli's rhetoric style and political views are much more moderate.

According to major think tanks' analysis, if He Jinli wins the election, she is highly likely to continue the current President Biden's approach in terms of economy, diplomacy, climate, energy, and welfare policies. In other words, He Jinli's policy direction is relatively easy to predict.

As the election campaign is about to begin, it is still difficult to predict who will win between the two candidates, and the situation remains highly tense.

According to data from the US opinion aggregation website "FiveThirtyEight" as of October 17, He Jinli's approval rating is 48.3%, closely followed by Trump at 46.3%; some polls focusing on individual swing states show that Trump's support is steadily rising. The competition between the two candidates is neck and neck, who will ultimately emerge victorious? Time will tell us the answer.

Turning the focus to Malaysia, both the political and business sectors along with investors are closely watching this election. After all, in terms of economy, finance, military, and technology, the United States remains the world's largest country, and other economies cannot match it for now.

Not to mention, the US dollar is still an important international settlement and reserve currency, therefore, every action of the United States is enough to impact the political situation and economic performance of various countries.

Taking a glimpse at the economic and trade relations, the United States is also a key partner for Malaysia. In terms of trade, in the first 9 months of this year, the United States is Malaysia's second-largest export market, accounting for nearly 13% of total exports; as for foreign investment, the United States also ranked third in the overall field last year, being an important source of funds and technology for Malaysia.

Amid various intertwined factors, Malaysia is inevitably involved. What should Malaysia pay attention to in this election? And how can it benefit and avoid harm at the same time?

Taking into account the political views of Trump and He Jinli, as well as dialogues with political and economic experts, the Nanyang Commercial News has summarized the potential impact on Malaysia brought by the victory of either party, prompting domestic political and business circles and investors to plan ahead.

Former Deputy Minister of International Trade and Industry Wang Jianmin said in an interview with this newspaper that for the Malaysian economy, the victory of any candidate would bring both opportunities and challenges.

"At present, the two candidates are evenly matched, and it is necessary for governments and enterprises in Malaysia and even ASEAN to plan scenarios for the governance of Trump and He Jinli in order to minimize negative impacts as much as possible."

What are the impacts of the two candidates? This newspaper presents them one by one from the perspectives of trade policy, US-China trade relations, and de-dollarization.

Economists and major brokerages interviewed all expressed concerns about Trump's inauguration. The reason is that his policies are too extreme, and are likely to greatly disrupt global trade and supply chains.

Professor Huang Jinrong from the Economics Department of UD expressed that if Trump really implements his policies, it will undoubtedly bring a huge negative impact on Malaysia. His most nerve-wracking policy proposal is the significant increase in tariffs mentioned earlier.

To reduce the trade deficit and protect American industry, Trump recently threatened to impose tariffs of up to 60% on goods imported from China, while goods from other countries will face tariffs ranging from 10% to 20%.

According to Huang Jinrong, the current tariff rate for Malaysian exports to the United States is about 3%. If it is truly increased to over 10%, it will undoubtedly expand the trade barriers between the two countries.

"Although the United States is not the largest trading nation, it always ranks in the top three, so increasing tariffs will have a huge impact on Malaysia's export performance."

Looking back at history, during Trump's tenure, he cast a shadow over the trade between the two countries. At the end of May 2019, seeing Malaysia's trade surplus with the United States surpassing a certain standard, the U.S. Treasury Department included Malaysia in the currency manipulation watchlist, accusing Malaysia of deliberately suppressing the Ringgit exchange rate to strengthen the competitiveness of its own goods in the international market.

Despite the Central Bank of Malaysia's rebuttal that there was no unilateral intervention in exchange rates, it has all been to no avail. To date, Malaysia is still on the watch list.

Taking a broader view, the significant increase in tariffs by the United States is like a 'Seven Injuries Fist,' hurting others and oneself.

Research from Fung Lum Investment Bank indicates that raising tariffs is no different from raising import prices, inevitably leading to higher living and production costs for American consumers and businesses, which will in turn result in serious inflation issues.

Wong Kam Weng stated that the Federal Reserve may raise interest rates to combat inflation by driving the world back into a high interest rate period.

Seeing the Federal Reserve raise interest rates, the country will also follow suit to prevent the Malaysian Ringgit from depreciating, which will put a damper on the domestic economy.

Fung Lum Investment Bank's analysis: 'Overall, Trump's protectionist policies could potentially escalate global trade tensions, increase inflation pressures. In the long run, this will drag down global economic growth.'

Turning to He Jinli, Wong Kam Weng observes that her policies are more focused on the US domestic economy, such as continuing the industrial and welfare policies from the Biden era, strengthening housing supply, which have less direct impact on Malaysia.

Lianchang International Securities generally holds a positive view of He Jinli's policies, indicating that she is more inclined to promote trade through multilateral agreements, create a more stable international trade environment, which Malaysia can benefit from, and no need to worry about sudden tariff increases or escalating trade wars.

"The benefits of He Jinli's policies will manifest more slowly, but indeed contribute to global economic growth."

Compared to Trump, He Jinli also pays more attention to climate change and the development of green technology. For example, last year's commitment to increase funding to the Green Climate Fund by $3 billion (about 13.56 billion ringgit) is one of the examples. In the view of Lianchang International Securities, this is a great opportunity for closer cooperation between Malaysia and the USA.

"As He Jinli promotes global energy transition, Malaysia is expected to attract more foreign investment in renewable energy, in line with the National Energy Transition Roadmap (NETR) vision."

On the other hand, as global demand for green energy solutions increases, Malaysia's solar and hydro power sectors are also expected to compete for a larger share of the international market.

Despite the many benefits, this does not mean that after He Jinli takes office, there are no hidden risks for Malaysia.

Firstly, He Jinli, who pays great attention to environmental protection, may increase the green content of imported goods, the less carbon the better, forcing Malaysian exporters to reduce carbon emissions in sync, inevitably raising production costs in the medium to short term.

Secondly, apart from the environment, He Jinli also pays a great deal of attention to the labor conditions of trading partners. In other words, for companies exporting to the USA, if they do not guarantee or strengthen labor rights, trading with the USA may face numerous challenges. Malaysia, which was detained by US customs for the crime of "forced labor," must be even more vigilant.

Despite major differences in political views, the two candidates have similarities in U.S.-China trade relations, both taking a tough stance against China.

The initiator of the U.S.-China trade war, Trump, promised during the election campaign to impose a 60% or higher tariff on China, shocking the world.

This month, Trump escalated his rhetoric by stating that if China "enters" Taiwan, additional tariffs of up to 150% to 200% would be imposed. His strong stance on U.S.-China trade is clearly evident.

As for He Jinli, she has criticized the Trump administration for being too soft on China, but has not yet put forward specific policy proposals on the U.S.-China trade issue.

Nevertheless, experts believe that she will generally follow the approach of the Biden administration, implementing a "small yard high wall" strategy to restrict the sale of high-end chips, semiconductor manufacturing equipment, and other high-tech goods to China, curbing the development of China's high-tech industry.

In other words, no matter which candidate is in power, in the era of escalating competition between the United States and China, the trade and technology war between the two countries will not end. For Malaysia, is this ultimately a benefit or a disadvantage?

Wang Jianmin holds a positive attitude towards this, pointing out that due to the tense relations between the United States and China, Malaysia can benefit from more foreign investment inflows and trade diversion effects. "If Trump is in power, this trend will be even more apparent."

Looking back at history, under the rivalry of the two powers, Malaysia has indeed reaped significant benefits. In terms of trade, according to Fung Lum Investment Bank's calculations, from 2017 to 2022, Malaysia's exports to the United States achieved a 8.4% compound annual growth rate (CAGR), higher than the global average of 6.7%; Malaysia's exports to China achieved a 11.2% CAGR from 2017 to 2023.

"Malaysian electronics, gloves, furniture, and steel industries have all benefited from the trade diversion effects."

When it comes to foreign direct investment, Malaysia also reaps the benefits.

In 2023, Malaysia approved foreign direct investment amounting to 188 billion ringgit, more than 3 times higher than the 54 billion ringgit in 2017. In recent years, with geopolitics becoming increasingly uncertain and a growing awareness of diversified supply chains, Malaysia has shifted its focus to investments in semiconductors, electric vehicles, and data centers.

However, amidst substantial profits, there are inevitably risks involved. Wong Chun Wai is worried that if Trump excessively imposes taxes on China after taking office, causing a large number of Chinese manufacturers to relocate overseas, China's economy will undoubtedly face a major crisis, which will immediately impact the Malaysian economy negatively.

"China is also one of Malaysia's main trading partners. If they suffer, we may not see the benefits, only the drawbacks."

UBS Group's research shows that if the US imposes a 60% tariff on Chinese goods, it will result in more than half of China's economic growth being compromised.

Furthermore, if too many Chinese enterprises come to Malaysia to establish factories, seeing Malaysia as a transit point to bypass US trade barriers, over time the tentacles of the US trade war may extend to Malaysia, causing the latter to incur more losses than gains.

The field of solar energy is also one of the battlefields. In April this year, seven US solar equipment manufacturers jointly urged the US Department of Commerce and the International Trade Commission to impose import tariffs on panels, batteries, and other goods from Malaysia, Vietnam, Cambodia, and Thailand, ranging from 70% to 272%.

The reason being that Chinese enterprises from these four economies are massively dumping solar energy products in the US, posing a threat to US businesses.

This election has also brought up a major financial issue - dedollarization. If Trump wins, the trend of dedollarization may become more intense.

According to the research by the CICC, if Trump really increases tariffs globally, triggering global trade shocks, countries will reduce their reliance on the United States and the dollar in trade and currency settlement, which is equivalent to paving the way for dedollarization.

Dedollarization does not mean completely eliminating the dollar, but rather reducing the use of the dollar in reserve currencies and settlements. After the 2008 financial crisis, the world began to consider reducing its dependence on the dollar or diversifying foreign exchange reserve currencies to mitigate exchange rate risks.

During the Russia-Ukraine war, the Western Camp froze over 300 billion US dollars of Russia's foreign exchange reserves, causing countries to fear and accelerate dedollarization. After all, no one knows whether they will conflict with the United States in the future and become the target of financial sanctions.

Malaysia is also a member of the dedollarization camp, having signed agreements with Indonesia, Thailand, and the Philippines in 2017 to use the national currency for bilateral trade settlements, and actively applying to join the BRICS organization advocating dedollarization.

At the end of October last year, Prime Minister Datuk Seri Anwar stated that 25% of trade between Malaysia and China is settled in Ringgit or Renminbi; between Malaysia and Thailand, Indonesia, 18% to 20% of trade is settled in the national currency.

However, seeing the fierce wave of dedollarization, Trump will not stand idly by. He recently stated at an election rally that countries that 'no longer use the dollar' will pay a price, 'for countries moving away from the dollar, we will impose 100% tariffs on their goods!' With these words, the world is watching closely.

How should Malaysia mitigate damages? Wong Jen Min stated that Malaysia should actively increase trade settlements in non-dollar denominations, reduce dependence on the US dollar, and this measure should be carried out quietly to avoid attracting attention from the United States.

However, according to Wong Jin Rong, the above statement is not a cause for concern. Firstly, there is currently no international law requiring the use of the US dollar as a settlement currency, "so I do not believe this policy is sustainable in practice."

Secondly, Malaysia's discussion on de-dollarization only applies to trade outside the United States or trade not involving the US market; if the trade network involves the US, the settlement currency will still primarily be the US dollar.

"Therefore, the United States has no reason to aggressively target Malaysia."

After carefully observing various industries in Malaysia, what potential impacts will Trump or Harris Jinli's presidency bring? After compiling the opinions of the New Fortune International Security, we present them to readers one by one.

Trump Administration: If Trump imposes tariffs on Chinese goods, American companies may enhance procurement from Malaysia, benefiting Malaysia's semiconductor, electronic parts, and equipment sectors. However, if global trade tensions escalate, overall demand may decline, posing a disadvantage to Malaysia's electronics industry exports.

He Jinli's administration: will actively stabilize the electronic industry trade between Malaysia and Myanmar, however, He Jinli's emphasis on environmental regulations may push up operating and production costs for Malaysian enterprises.

Trump's administration: Similar to his first term, Trump's "America First" energy policy will greatly increase US energy production, reduce the demand for imported energy, thereby dragging down global energy prices, which will greatly affect the export value of mineral fuels in Malaysia.

He Jinli's administration: He Jinli's active efforts to reduce carbon emissions will lead to a decline in demand for fossil fuels, which is not favorable for Malaysia's oil & gas industry exports. However, if Malaysia can shift towards producing and exporting clean energy goods, it may create new business opportunities.

Trump's administration: If the escalating trade war drags down global demand, or significantly raises input costs, the Malaysian glove industry will be severely affected.

He Jinli's administration: Her health policies may increase the demand for medical products, including rubber gloves produced in Malaysia. However, higher environmental standards may raise production costs.

During Trump's presidency, as the trade war escalates, the agricultural sector, including soybean oil and rubbers, may benefit. While China retaliates against American soybean oil, they will also increase purchases of rubbers from Malaysia.

Under He Jinli's administration, despite the increased costs in Malaysian agriculture due to her emphasis on environmental protection and labor rights, this is a positive transformation catering to the environmental, social, and governance (ESG) principles. In addition, He Jinli's energy transformation policy may lead to a bullish trend in demand for biofuels, which would be a good thing for Malaysia's palm oil industry.

The US election has entered a heated stage, with economists predicting the impact of the candidates on the Ringgit. Ludovic Subran, Chief Economist of insurance institution Allianz, expressed that if He Jinli is elected, the Ringgit will regain its momentum and could rise another 5% by the end of the year.

The 2024 US presidential election falls on November 5th, with less than 3 weeks left, the world is eagerly awaiting who will be elected as the new US president.

Subran pointed out that the current exchange rate fluctuations are significant, with the market generally believing that if former President Trump is elected, the US Dollar will strengthen; if Vice President Ho Jinli is elected, the US Dollar will weaken.

In contrast, if Trump is elected, the Ringgit will further depreciate by 5% to 10% in 2025; if Haji Lai is elected, the depreciation is expected to be controlled between 2% and 3%.

He still believes that the Ringgit's trend correction and other factors continue to bring some downward pressure on the Ringgit. Despite this, the Ringgit is not significantly overvalued, the real issue is external unfavorable factors.

He said that Malaysia relies heavily on foreign capital to drive economic growth.

I remain optimistic, believing that a 2% to 3% decline in the Ringgit under Haji Lai's election is manageable. In the short term, the Ringgit still has the opportunity to appreciate, and will stabilize before 2025. The main concern is Trump, if he is elected, it will lead to further depreciation.

Since October, the ringgit has fallen by more than 5% against the US dollar. As of 5:00 PM, the exchange rate was 4.3503 ringgit to 1 US dollar.

Investors, who do you think has a higher chance of winning? Or rather, who do you prefer to be the winner?