CEO Morning Brief

Impact of Trump's Proposed Tariffs on Chinese Imports Likely to be Less Severe Than Feared for Region — Affin Bank

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Publish date: Fri, 17 Jan 2025, 09:36 AM
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TheEdge CEO Morning Brief
'Reports indicated that many advisers are urging Trump to adopt a gradual approach towards tariffs imposed on imported goods from China,' says Affin Bank’s chief economist Alan Tan Chew Leong. (Photo by Mohd Izwan Mohd Nazam/The Edge)

KUALA LUMPUR (Jan 16): Despite incoming US President Donald Trump's pledge to impose sweeping 60% tariffs on all Chinese imports, the implementation is likely to be far less drastic, according to Affin Bank’s chief economist Alan Tan Chew Leong.

Speaking at the Rehda Institute's CEO Series 2025 Economy & Business Forum, Tan believes that Trump is unlikely to impose a blanket 60% tariff on Chinese goods.

Instead, he expects a more gradual approach, with tariffs potentially set at much lower rates, driven by concerns over US inflation.

“The most likely scenario is that Trump would use tariffs as a negotiation tactic against China, with rates being imposed at 20%, or even as low as 10%,” Tan said.

“Reports indicated that many advisers are urging Trump to adopt a gradual approach towards tariffs imposed on imported goods from China.

"We may see tariffs [on imported Chinese goods] starting from 5%, gradually increasing to 10%.

"With the US Federal Reserve (Fed) targeting an inflation rate of 2%, any drastic trade measures could exacerbate inflationary pressures.

“The Fed is targeting an inflation target of 2%. Assuming a scenario where Trump goes ahead with [60%] tariffs, inflation will be another problem for the US,” he said.

“Therefore, the view that I am taking here is Trump’s tariffs on Chinese goods will be [done via] a more gradual approach. So, the impact and negative implications of Trump's tariffs this time on the region may not be as bad as what we all fear,” he added.

Further, a 60% blanket tariff on Chinese imports would drag China’s gross domestic product (GDP) growth by 1.9%, he noted.

Meanwhile, Tan also expects the Fed to cut interest rates two to three times this year, narrowing the interest rate differential between the US and Malaysia.

He expects Bank Negara Malaysia to maintain its overnight policy rate at 3%, a rate that has been kept since May 2023.

“With the narrowing of the interest rate differential, we will continue to attract foreign lenders investing in Malaysian capital markets and other assets,” Tan said.

Against this backdrop, Malaysia’s economic growth is well positioned to weather external shocks, driven by domestic demand, particularly private and public investments fuelling growth, he said.

He expects the country’s economy to grow 5.2% this year, in line with official forecasts of 4.5% to 5.5%.

Tan also said that the government's commitment to fiscal consolidation and bringing the fiscal deficit back to 3.8% of GDP this year will remain favourable from a sovereign rating perspective. This, coupled with the current account surplus and economy growth, may lead to a possible upgrade in Malaysia's credit rating outlook.

Source: TheEdge - 17 Jan 2025

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