CHAPTER ONE: INTRODUCTION

1.1 Introduction

Nowadays, the world's two biggest economies are the United States (US) and China.
There have been problems in the economic relations between the two countries for some time
now. The increasing economic power of China is threatening the economic position of US in the
world. United States accuse the China is stealing US jobs, purposely undervaluing its yuan
currency, exporting deflation by selling at low rates, holding labor costs low by abusing human
rights and failing to meet commitments made to the World Trade Organization (WTO). China
became a part of the World Trade Organization on 11 December 2011 (WTO) and this is the
opportunities to them in global economy. In fact, the accession of China to the World Trade
Organization (WTO) has improved its economic growth and facilitated its legal and governmental
reforms. After that, Americans are beginning to see China as a challenge more and more.
Increasingly, some elected officials and lawmakers have highlighted the ways China is
threatening the United States, even reviving the Committee on the Present Danger. However, on
March 22, 2018, the president of US declared a trade war for against China. The action taken by
President Donald Trump are fifty billion US dollar in tariffs levied on China’s products. The US
president Donald Trump state that the traffic is one of the action that try to balancing the
economic between China and United State. This is because Donald Trump state that china always
sell or output their products at the low price to Americans and this action is become violating the
right to intellectual property. After the declaration to imposed the tariffs on China goods, China
also has set tariffs on US goods as a counterattack. In China, there is a belief that the US is
seeking to curb its growth. This led to a trade war between the world's two most dominant
economies. There are ongoing talks, but they have proved challenging. On topics like how to
scale back tariffs and enforce an agreement, the two sides remain far apart.

1.2 Background of the Studies and Problem Statement

In 2016 United State presidential election, Donald Trump promise to decrease the massive
trade deficit cause by the products of China output. He asserted that this was primarily focused on
the unfair trade policies of China, like stealing of intellectual property, forced transition of
technologies, and the lack of business access for US businesses to join China, as well as the
unfair competition environment created by Beijing's preferential allowance to Chinese business.
In June 2017, the President Donald Trump launched a investigation that call “232 investigation”
On the importation from China of steel and aluminium. Given the immense manufacturing
potential of steel and aluminium in China, China is believed to be targeted by the investigation
and the following extra tariff.
On 22 March 2018, after the investigation done by United State Trade Representative (USTR)
in section 301, President Trump has announced his decisions on the steps the Administration will
take. After that, the US extensive a list of thousands and more of Chinese products that would be
susceptible to an extra tariff on 4 April 2018. On the following day however, China quickly
released a similar statement, to respone the challenges by US with alerts of additional taxation on

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US products and immediately take the action to fight back with additional tariffs in a hundred and
above of American products at similar value, to reciprocal the tariffs balance between US and
China.
After around of ministerial negotiation between US and China, Xi Jinping, the General
Secretary of China decide that will meet with Donald Trump at the 2018 G20 Summit. The two
parties decided to postpone the new trade tariffs for a duration of 90 days for negotiations. This
decision making by both countries are temporary stop the trade war and it give both side have
time to decide the best policy to maintain the relationship between US and China.
The trade conflict between China and the US has also influenced the world economy.
Especially the countries that rely on import and export as their main income such as our country
Malaysia. This is because Malaysia’s economy will be affected by the tariff that China and United
State played. This is an important issue for whole world because that is not only will effect the
economy but also society and environmental. This is because the economy system in a country is
related to society and also environmental. For example, economic contraction will increase the
unemployment rate and lower the employment rate. The aim of this research is to determine that
what kind of method policies are used by China and United State and the impact for Malaysia’s
economy. This research also will give some suggestion solution to solve the relate problem.
1.3 Research Questions

i. What are the trade policies used by US?

ii. What are the trade policies used by China?
iii. How does Trade War effect the economy of Malaysia?
iv. What are the strategies being taken to overcome the Trade War?

1.4 Research Objectives

1.4.1 Identify Trade Policies used by US.

1.4.2 Identify Trade Policies used by China.
1.4.3 Identify Impact of the Trade War on Malaysian Economics.
1.4.4 Identify Steps to Overcome the Trade War.

1.5 Importance of Study

The importance of study is to identify the trade policies used by US and the trade policies
used by China during the Trade War. This assignment is focus on find out the effect on the
Malaysian economy of the Trade War. Besides, research on the strategies being taken to
overcome the Trade War. After that, study on Malaysia’s actions in US and China Trade War.

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Chapter Two: The Theory and Literature Review
2.1 Definition and Concept
2.1.1 Definition of Trade War
When one nation makes reprisals against someone by increasing tariff barriers or
enforcing other limits on exports from the other nation, a trade war occurs. Trade wars will begin
when a nation aware that a competing nation has unjust competition policies. Business
representatives, may focus more attention on policymakers to attract consumers less open to
manufactured products, forcing foreign policy into a trade war. Trade conflict is most frequently a
misunderstanding of free trade's widespread advantages (Chen, 2020). According to Cautero
(2019), the after-effect of protectionism is trade wars. There's not always a negative thing about
protectionism. It will for instance, help defend domestic companies, employment and profits
against international import competition. However, trade war always detrimental to the
economies of both nations.
2.1.2 Types of Malaysian Economic
Malaysia use the Central Command System and the Free Enterprise System, therefore
Malaysia was a mixed economy. This type of economics in Malaysia are regulated by the
government sector private sector. The government has the power to control but cannot fully
control the market. According to government law, the government will assist business people and
regulations and the market not only includes the seller, which includes the buyer, but also the
government needs to assist the customer as it guarantees that the consumer is pleased or agrees
with the seller's prices of products and services (UKEssays, 2018).
Malaysia's economic system is primarily a laissez-faire, open market, focused on
commerce, consumption, development and services, with government control over national
priorities and national wealth realignment. Electronic goods contribute to a substantial share of
Malaysia's manufacturing and exports. It is the world’s biggest exporter of semiconductor
products and electrical parts and machinery. Malaysia's main trade partners are China, Singapore,
the United States and Japan. (Teoh, 2017).
2.1.3 Effects of Trade War between US and China
The trade war affected economic damage across both parties, resulting in economic
activities such as import and export of United states and China. United States’ economic growth
slowed, business spending slowed, and as Heather Long described in the Washington Post,
companies did not hire as many workers. As a consequence of the trade war, China also felt
economic pain, but obviously not enough to capitulate to the central demands of the Trump
administration for significant structural reform. China offered benefits to their trading partners
which cut tariffs to decrease its reliance on United States markets (Hass, Denmark, Long, 2020).
The tariff rises presently in effect would delay global Gross Domestic Product (GDP)
growth among 0.7%. The trade dispute also restricted trade between the China and the United

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States. The increase in volatility has mirrored global manufacturing purchasing manager and
investment sentiment indexes decline. Moreover, the RMB devalued because China has allowed
its currency to depreciate marginally in reaction to recent United States tariff increases. In the
capital markets, trade war news causes anxiety and raised stock price volatility. The impact of the
trade war had noticeable in enhancing economies, and particularly in China, on the stock markets
(Vilmi, Kerola, Ikonen, 2019). Initially, international trade controls and tariffs bring benefits to
the nation's economy. International trade controls can defend domestic businesses and therefore,
employment, but they also can have long-term impacts that are potentially disastrous. A trade
war, for instance, can cause downturns in any country's economy, can spark inflation, and can
also raise the cost of commodities as trade wars decrease competition (Cautero, 2019).
2.2 Literature Review
2.2.1 Trade War in General
The feature of the trade war is that an imported product is introduced by a country with
tariffs or quotas, and foreign countries respond with similar tariffs (Ting, Koay Yi, 2019). A trade
war occurs when one nation takes action against the other nation, by increasing import tariffs or
by enforcing other limits on exports from another country, which is consistent with James (2018).
The application of variable and scientific theories was studied in the trade war. The
Anglo-Hanse trade war (1300-1700) was described as a repeated prisoner’s dilemma, and they
worked hard to form a partnership because of the price of supply, economic and rent-seeking
crisis. At the end of the 18th century, the tariff war among Italy and France was an example of an
asymmetrical battle of commerce. This trade war gave a small country the opportunity to start a
trade war with a powerful nation, thereby forcing the previous country to make big compromises.
An idea of the impact of commercial advertising on inhibiting cooperation in trade agreements is
presented by the Hawley-Smoot disputes of the 1930s. (Conybeare, 2011)
Economists promote trade between countries, but trade protectionism may arise due to
political reasons such as tariffs, such as tariffs. The trade war is a government action and means
to restrict trade. It is controversial and is a side effect of trade protectionist policies. Proponents
say the trade war has maintained national security and caused supply problems for domestic
companies. In the opposite, those opposed to the trade war argue that the economy wars have
weakened the local economies, customers and the environment. (Hayes, 2020)
2.2.2 Research about the Impact of Trade War between US and China in Other Countries
This trade war is an injury that will hurt the other country and therefore the United States
itself, which is consistent with Zhao and Liew (2019). For example, On March 1, 2018, the
president of the USA declared that he planned to issue a tariff on steel imports with 25% and a
tariff on aluminium imports with 10%. This decision not only affects China, but also exports from
other countries, and adversely affects the U.S. economy, because rising tariffs will increase
consumer prices and production costs. On the contrary, due to Japan and other countries and the
EU's anti-retaliatory economy war against the United States, imports from United States have
decreased. According to Pritesh Samuel (2020), Vietnam has always been the best winner in the
US-China trade war. Vietnam’s increasing demand has attracted international investors and
increased supplies to the United states.

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 The Chinese exports have potential to be replaced by East Asian countries (especially
emerging economies) within the United States is huge. Compared with the economic scale,
Vietnam, the Cambodia and Philippines are the nations with the biggest substitution scope in East
Asia. Taking into account the domestic value added of these exports, Vietnam currently exports at
least 10 million products to the United States. It is estimated that the decline in the exports to the
U.S. from China would account for Vietnam's Gross domestic product with 10.9%. The most
promising are those projects that both anticipate a reduction in China’s exports and therefore
actually reduce Vietnam’s exports to the United States. Expected. Because of these features,
Cambodia uses a much smaller range of products which indicates a high concentration of baskets
for exports. In Taiwan, Singapore, Malaysia and Thailand, there is still export substitution
potential that cannot be ignored. Potential substitutes in Indonesia are more restricted. Indonesia’s
total exports to China’s products that have been exported to the United States have fallen,
accounting for 1.3% of GDP, of which 1.0% of GDP is related to domestic value added. (Calì,
2018)
On the other hand, the Economic War between the U.S. and China is affecting a lot of
nations and the global, but will benefit their welfare and trade, especially GDP and manufacture
employment (Li, 2018). The trade war will raise the GDP and unemployment rates in many
developed countries as the target goods grow in the Sino-US trade war. Shockingly, as a
consequence of dynamic developments in the global supply chain, the gross domestic product of
Western Europe, Africa and Latin America will rise, but local emissions and unemployment will
decline. For the economy and the environment, this is a win-win outcome. The GDP of the U. S.
and the China's nearby regions (such as Canada, Japan and South Korea) will rise because cross-
border air travel from the United States and China declines, but the unemployment rate will
decline, thus trying to make up neighbouring countries for local emissions. (Du Mingxi, 2020)
2.2.3 Research about the Impact of Trade War between US and China in Malaysia
Although world economy was affected by the trade war, but the economy war has no
tremendous impact on the success of Malaysia’s trade with the two countries. The increasingly
fierce tariff war among China and the United States will cause China manufacturers to consider
establishing factories in Malaysia to prevent new tariffs. For example, the direct impact on solar
exports in 2017 and 2018 illustrates that total exports to the USA and domestic exports has been
decreased, re-exporting has improved, and Malaysia has expanded the exports and re-exporting to
China on re-exports other than solar energy. After the "Belt and Road" initiative was introduced,
China's investment in Malaysia has increased, it is therefore responsible for the total export
growth of the United States. As the company moves from China to China, the increase in
investment is very likely. (Siew, Andrew and Tee, 2019)
In Malaysia alone, few studies have been conducted. The focus of MIDF (2018) was on
evaluating the effect of trade wars on the outcomes of Malaysian trade, but failed to clarify the
model used. They predict that demand in the United States will decrease by 1%, and production
in Malaysia will decrease by 0.86%. At the same time, after the implementation of tariff increases
on washing machines, solar panels, stainless steel and aluminium in 2018, Malaysia’s exports will
fall by 3-5%.
According to Muhamad Aizuddin et al. Ah (2018), according to the list of products that a
significant position is played by Malaysia in the U.S. import industry and the future trade

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substitution revenue will reach US$970 million is estimated. However, the mechanism has not yet
been clarified. Their anecdotal evidence shows that protective tariffs have little negative impact
on neutral to weak and support the transfer of steel export markets, so the demand for solar panels
and modules is high. Generally speaking, since tariffs were only imposed in 2018, the latest
analysis evidence for trade analysis in countries such as Malaysia is insufficient (for example,
from 2018 to 2020).

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CHAPTER THREE: ANALYSIS OF STUDY
3.1 Trade Policies used by U.S.
Trade policy refers to the standards, goals, rules, regulations and agreements that
controls imports and exports to foreign countries (Economy Watch, 2010) Trade policies have a
high chance of influence in determining food accessible at the macro level, and also help in
managing the changes of prices in the global markets. These policies are vary and precise to each
country and are made by its public officials. Their main purpose is to boost the nation’s
international trade.
First trade policy that was used in the US is trade rules-setting. This policy includes
liberalization and enforcement. This means, US decided to hinder or reduce of restrictions or
barriers on the free exchange of goods between countries. Tariffs, such as duties and surcharge,
and non-tariff barriers, such as licensing quotas included as barriers All these happened, by
negotiation of trade agreements to make markets available and set rules on trade and investment
enforcement of commitments through dispute settlement and U.S. trade laws.
Second, U.S. has implemented export promotion and controls (Dallaz, 2017). Export
promotion refers to the bids encouragement to the exporters with a view to mend the exports of
the country. Exporters have given many promotion by U.S. such as cash subsidies, bank loan at
cheap rate of interest, concessional freight rates are charged by railways and shipping companies
on the goods exported, tax concessions are given to the export, advocacy and licensing and
control of strategic exports.
Next policy is trade preferences. U.S. has made duty-free access to U.S. markets for
allowing developing countries and their products, intended to encourage trade and prosper their
economic growth. Besides that, a program has been organized under trade preference called
Generalized System of Preferences (GSP) that provides opportunities for many of the world’s
poorest countries to use the U.S. trade to thrive their economies and get out of poverty.4
Fourth policy that used by U.S. is investment. Unlike other countries, U.S. had a good
investment management for their exporters. This is due to investment allocate huge and
prominent dividends for the U.S. economy and American workers by increasing exports in
double, improving productivity, creating job opportunities, and increasing wages. Protection and
promotion used through investment treaties and trade agreements so that their exporters can
compete on a level playing field.

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3.2 Trade Policies Used by China
The first trade policy that was used by China is tariffs (Howard Gleckman, 2018). Tariff
means a tax from the government of a country that charges on the goods or services that are
entering or exiting a country. Tariff plays a big role in restricting imports by increasing the price
of goods and services from another country, making them less affordable for domestic consumers.
For an example agriculture and non-agriculture products. China leaps 100% of its tariffs. Its ad
valorem rates whopping from 0% to 65% for agriculture products and from 0 to 50% for non-
agriculture products after its participation in WTO. The tariffs applied in 2013 was 9.4% downed
remarkably since 2001 when the average stood at 15.6%. For agriculture products there were
spiked at 14.8% while the tariff for non-agricultural products have changed which is reduction
from 14.4% in 2001 to 8.6% in 2013.
Next, China has non-tariff barriers as one of their trade policies. This is defined as
prohibition, conditions, or specific market requirement that make importation or exportation of
products difficult and costly and can be said restrictions in general (TradeBarriers, 2011).
Permitted, restricted, and prohibited are the three types of China’s import categories. Permitted
means most imported goods. However, these imports might submitted to automatic licenses to
surveillance their numbers for statistical recording purposes. Restricted goods are those goods the
import or export of which is restricted under the providing of the Common Customs Law or any
other regulation or law applicable and may only be release subject to the approval while
prohibited goods means they are prohibited under act or any law for the time being in force.
WTO rules and international commitments that are obtainable must be adhered by all import
prohibitions, restrictions, and licensing.
Thirdly, is trade facilitation. Trade facilitation means a country removing obstacles to the
movement of goods across borders such as simplification of customs procedures (Global
Negotiator). China has created customs procedures more efficient for imports and exports. For an
instance. “E-Port”, launched by China is an an electronic platform that operates as a “single
window” where traders are able to file on-line customs declarations and make payments in
foreign exchange of duties in over 13 major authorities. In 2009, pilot program was launched
which aims to organize imports and exports according to risk level of enterprises based. China
also started to implement of the Reform of Paperless Customs Clearance to manage imports and
exports via air, sea and land in 2012.
Besides that, China also has export promotion and marginal trade liberalization. China
made much bolder trade liberalization since efficiency and competitiveness of Chinese economy
increase such as reducing the tariff rates, import compulsory plans, import quotas and licenses.

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China government has declared import adjusting duty, export subsidies and import substitution
measures will be ceased. Trade pattern and the price system became more reasonable in economic
sense. Furthermore, in an effort to relive export dumping and low-price competition in
international market export licensing requirement and export tax system were consolidated.

3.3 Impact on Malaysia Economics

Trade war between US and China have positive and negative impact to the economy Malaysia.
The impact of Malaysia economics including industry field, money exchange rate, export and
import Malaysia, business and so on.
3.3.1 Impact from aspect of industry
Before the trade war US and China getting serious, the microchip of Huawei phone is
producing by US. However, US stop producing and supply microchip to China for Huawei phone
at September 2020. US also banned many apps such as Tik Tok and Google service will stop
further cooperation with Huawei and will not provide in Huawei phone since end of year 2019
onward. Huawei company create a new system called Huawei Mobile Services (HMS) to replace
the Google Services and Dailymotion is an alternative for YouTube and it also develop a new
system Hormony OS to replace the Android system in future.
Company which produced microchip of Huawei phone or called Kirin high-end chip will
receive last order at 5 May 2020 and stop produce at 15 September 2020 is one of the US
sanction to China according to AP News. This indirectly impact to microchip produce industry
company in Malaysia. The profit of industry Malaysia will reduce because the order from China
decreasing. Company will reduce the number of employee in order to reduce or save the cost. The
unemployment rate in Malaysia will increase dramatically and it lead to the recession of the
economics. This is one of the impact to industry of the trade war.
Malaysia will export the source of electronic and electrical component directly to US
without passing third party (China) after the supply chain of China been disrupted which
indirectly increase the profit earned. Example, US import electronic integrated circuits for the
processors and controllers and also import telecoms instruments and apparatus instruments for
measuring or checking semiconductors. Before that US import electronic and electrical
component from China but since the trade war become more serious, US had stop import from
Chin because impose of tariffs on imported goods. If US continue import from China, the cost of
product will highly increase and reduce the profit earned. The cost of incoming product or raw
materials indirectly increases and the company will convert additional costs on the product
produce to customer because company will not defer the excess cost and to prevent the loss. In
this case, increase of final product cost and will increase the burden of americans. The purchasing
power of americans will decline.

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 United States (US) may cooperate with Malaysia to prevent import of high cost semi
electrical product. According to Theedge Markets, it shows that Malaysia has more benefit from
the supply chain disruption because US will find cheaper resource from other countries such as
Malaysia. US will import electronics and electrical component like transistors, microcontrollers
and others from Malaysia but not China. The demand of industry for electronics and electrical
component will increase and company will produce more product when order increase. Company
required more workers to produce the product. When this happen, employment opportunities will
increase as well as purchasing power for Malaysian. This due to they have stable income to buy
essential and also luxury thing. In addition, company will pay more tax to government when they
earned more profit. As result, government revenue increased and economic growth occurred
rapidly.

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 3.3.2 Impact from aspect of money exchange rate

Years Average USD/MYR Average CNY/MYR

2015 3.911086 0.621775
2016 4.144110 0.623608
2017 4.300317 0.636212
2018 4.036542 0.610184
Table 1: The average money exchange rate of 1unit USD and 1unit CNY to MYR from year 2015
until year 2018.

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 The average money exchange rate of 1unit USD and 1unit CNY to MYR from
5 year 2015 until year 2018

4.5
The average of money sxchange rate (MYR )

3.5

2.5

1.5

0.5

0
2015 2016 2017 2018
Years
Average USD/MYR

Figure 1: The trade of average money exchange rate of 1-unit USD and 1-unit CNY to MYR from
year 2015 until year 2018.

The Table 1 and Figure 1 shows the average money exchange rate of 1unit USD and 1unit
CNY to MYR from year 2015 until year 2018.
Figure 1 show the ringgit price sell at RM 3.91 per USD in year 2015 and it keep on
increase in following year except year 2018 which slightly drop. In year 2018, the exchange
money rate of ringgit Malaysia price sells at RM 4.03 per USD. It means that we need more
ringgit Malaysia to exchange 1 unit USD. For example, Malaysia need pay more money when do
the transaction with US compare to US make payment after import from Malaysia. This show
that profit for Malaysia will decrease cause by the money exchange rate is higher. In this case,
Malaysia will decrease import from US to prevent the loss which impact to the economic
Malaysia.
The money exchange rate for CNY has increase every year except year 2018 show that
decrease in the Figure 1. In the year 2015 show that ringgit sell at RM 0.62 per CNY while the

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price of ringgit is RM 0.61 per CNY in year 2018. It means that we need less ringgit Malaysia to
exchange 1 unit CNY. When do the transaction between China and Malaysia, Malaysia will pay
less money when compare to China. The profit or revenue of Malaysia will increase because the
rate of money exchange is low.
The tourism industry will also affect by currency rate due to tourism will consider
currency rate to plan their budget to travel in one country. For example, people who want to
travel to United States (US) need exchange more money due to the high money exchange rate.
People will decide to go for low money exchange rate country for travel. In the low money
exchange rate country, the profit of tourism industry will increase and indirectly government
revenue will increase as well.
In conclusion, the money exchange rate between US and Malaysia will directly impact to
economics Malaysia. There are some positive impacts on economy Malaysia when has
transaction with China. For the rate exchange money between China and Malaysia, the profit of
Malaysia is increasing and stimulate the economy Malaysia. It shows that trade war between US
and China cause impacts to economics Malaysia.

3.3.3 Impact aspect of export and import on Malaysia between US and China

Table 1: The data of China and United States (US) export to Malaysia from year 2015 to year
2018.
Export to Malaysia (RM million)
Years
China United States (US)
2015 101537 73669

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 2016 98578 80233
2017 125957 88680
2018 139147 90811
(Source: Jabtan Perangkaan dan Perbadanan Pembangunan Perdagangan Luar Malaysia)

Table 2: The data of China and United States (US) import from Malaysia from year 2015 to year
2018.
Import from Malaysia (RM million)
Years
China United States (US)
2015 129280 55344
2016 142387 55658
2017 164445 65275
2018 175417 64947
(Source: Jabtan Perangkaan dan Perbadanan Pembangunan Perdagangan Luar Malaysia)

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 The Trade between China and US export to Malaysia from year 2015 to year 2018
160000
The data for eport to Malaysia (RM million)

140000

120000

100000

80000

60000

40000

20000

0
2015 2016 Years 2017 2018
China United States ( US)

Figure 1: The trade between China and United States (US) export to Malaysia from year 2015 to year 2018.

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 The data of China and US import from Malaysia (RM millions

The data between China and US import from Malaysia from year 2015 to year 2018
200000
)

180000

160000

140000

120000

100000

80000

60000

40000

20000

0
2015 2016 Years 2017 2018

China United States ( US)

Figure 2: The data of China and United States (US) import from Malaysia from year 2015 to year 2018.

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 Malaysia export and import from China from year 2015 to year 2018
200000

180000
The data of export and import (RM millions)

160000

140000

120000

100000

80000

60000

40000

20000

0
2015 2016 2017 2018
Years

Import Export

Figure 3: The data of Malaysia export to China and import from China from year 2015 to year 2018

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 Figure 3 shows that Malaysia export to China more than import from China from year
to year although the import trend increase every year. It means Malaysia earn more profit
when trading with China. In the year 2018, the trade war between US and China was started
but Malaysia not affected. This is due to China will replaced the demand of soybeans to palm
oil from Malaysia which believe that will drive the economics Malaysia.
Before the trade war happen, most of China agriculture product was imported from the
US like soybeans, pig, cotton and others. This is due to high production of soybeans in US
compare to China. China import more soybeans from US because the source of soybeans is
not enough to produce the feed for animals, dried distillers’ grains.
After the trade war was happened, China stop import the soybeans or agriculture
product from US due to the high tariff. China plan to import the agriculture product from
Malaysia because United States (US) has increase tariff on imported products. According to
the Sinar Harian indicate that US increase almost 25% tariff on imported soybeans by China.
This provide a chance of Malaysia to provide palm oil to China instead of soybeans from US.
This can increase Malaysia export rate as well as increase employment opportunities.

Malaysia’s export rate to China has increase every year because China increase the
transactions with Malaysia from year to year. According to the Jadual Perangkaan, it shows
that Malaysia export rate increase year to year for electric and electronic(E&E), none E&E
and liquefied natural gas. The data of liquefied natural gas shows an increase trend. For
example, the liquefied natural gas has increase from RM 3882 million in year 2015 to RM
8874 million in year 2018 although in year 2016 has decrease that is RM 3142 million. US
has export the petroleum gases and other hydrocarbons gases to China before the trade war
happens. Besides that, China change mind to import from Malaysia instead of US for the
natural gas.
The export Malaysia increase every year and it means that the export Malaysia can
balance the import Malaysia. It will show that Malaysia has the revenue to boost the
economy. The employment opportunities have increase and workers are able to pay more
private taxes because their incomes have increased.

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 Malaysia export and import from United States (US) from year 2015 to year 2018

100000

90000
The data of export and import (RM millions)

80000

70000

60000

50000

40000

30000

20000

10000

0
2015 2016 Years 2017 2018
Import Export

Figure 4: The data of Malaysia export to US and import from US from year 2015 to year 2018.

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 Figure 4 shows that Malaysia export to US less than import from US from year to year.
US import the product or item from China before the trade war begin. The products import
from China such as component of car or tires, plastic container, game product, furniture,
electronic products, and machines. The people who live in US was affected if stop the
transaction between US and China. This cause an increase of burden to Americans to buy the
product due to the high pricing. Industry company will increase the cost of final product
produce will incoming product cause increase and this lead to increasing of price for certain
product.
In this, US will import the products directly from Malaysia to reduce the cost. The
export to Malaysia is greater than the import from Malaysia even though import rate
increases every year. This indicate that cooperation between Malaysia and US will cause the
bad influence on the economy Malaysia. When the import rate is greater than export rate
causing more money flow out and influence the profit earned.
Based on the Jadual Perangkaan, it shows that US has import more nonelectrical and
electronics (E&E) product which increases from RM 27616 million (7.9%) in year 2015 to
RM 47277 million (8.8%) in year 2018. This mean that the nonelectrical and electronics like
product gaming import from Malaysia instead of China.
3.3.4 Impact from aspect of business
The business for automobile will affected by trade war US and China. United Stated will
affected because more of automakers is import from China. The China government will
increase the charge tariffs on the product which export to United Stated about 25% increase
from 15% to 40% in the year 2018 according to Global Trade. The cost to produce
automobiles will increase and the company need to bear the additional cost to produce the
automobile. Americans face the difficult to buy the automobiles because the cost of car
increase indirectly the prices of the car.
This affect the automobile business in Malaysia. This is because Malaysia import the
automobiles from US. Example of brand for US’s car is Cadillac, RAM, Tesla and more. The
cost and tax of imported automobiles increase causing Malaysian decide to buy local
automobiles. The price for local automobiles like Perodua, Proton, Kia and others will be
cheaper due to low tax charge compared to imported automobiles. Government revenue will
increase when more people to purchase local automobiles. The job opportunities in related
industry field when demand of local automobiles increase and it impact to the economy
Malaysia.

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3.4 Strategies to Overcome the Trade War
3.4.1 Join Other Countries To Speak Out Against United States

As you all know, the trade war was started by Donald Trump, who is United
States’ President. This trade war is a major threat to world trade and the global economy, it
will impact the whole world negatively if it prolonged. In this trade war, not only included
United States and China, other countries also will be affected. For instance, European
countries, South Korea, Japan, Canada and other country. This is because United States has
increased tariffs against these countries. And also, country like Malaysia that are engaged in
global supply chains will definitely got affected. Example, Malaysia will export some
components like electronics to China. These components will be used by China to make
products such as mobile phone, computers and other electrical accessories. Some of these
products will also exported by China to United States. If United States give the tariffs to these
products, this will cause production of China will be reduced. And thus, the number of
components that Malaysia will export to China will be poor.
To overcome this problem, Malaysia should join other countries in speaking out
against U.S’s unilateral steps and taking other actions to stop the trade war from entering a
major crisis that our country cannot afford to have. It is clear that the United States is the
initiator of the trade conflict, complaints by other countries such as China, The Europe,
Russia and India have filed with the World Trade Organization against the U.S. Our country
should join in as complainants. Joining a lots of countries will create large power of
consultation to speak out with United States. With these power, the process of consultation
will be successful, United States may shrink back the tariffs which given to imported China’s
products. The Malaysia and global economy will recover back to the beginning. (Khor, M,
2019)
3.4.2 Restructure The Global Supply Chain
Our country Malaysia should take a proactive measure to improve local export
activities and overcoming the adverse trade consequences of the continuing commercial war
between U.S. and China. Example, the government of our country can give the subsidiary to
the local company. With extra subsidiary from government, local company or factories will
be able to produce the products in large amount with low-costing. The lower price of
products will attract other country to make a deal with us.
Besides that, the Malaysia’s International Trade and Industry Minister, Datuk Seri
Mohamed Azmin Ali has decided a method to reorganize the worldwide chain of supply. This
will allow products from Malaysia to replace manufactured goods from China and the U.S.
Also, this measure would make it easier for international businesses to be influenced by the
commercial war to transfer the activities to our country, Malaysia. The purpose of this
measure is to ensure that Malaysia is identified as a relocation target for companies impacted
by the US-China transaction conflict. In addition, government or authority also needs to
seeking for draw foreign companies, consist of the companies in United States, in order to
capitalize on geographic position of Malaysia and make the nation as alternative regional
manufacturing center to sell its goods in the worldwide supply chain, said by Mohamed
Azmin Ali.
Furthermore, the government will also encourage Malaysia-based global manufactures
to boost their contribution or any investment in the country to comply with import

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qualification which set up by United States, China and other different countries which had
engaged in the world supply chain. (Hamdan, 2020)

3.5 Malaysia’s Actions in US and China Trade War

In January until March, 2018, Malaysia have requested consultation to the safeguarding
tariff of the Safeguards Agreement of the World Trade Organization (WTO). It is because,
after February 2018, the safeguard tariffs levied on steel (25 %), aluminium (10 %) and solar
(30 %) could impact the exports from Malaysia to China and US. The solar’s tariffs are
projected to decreased the exports of solar cells from Malaysia to China, it will increase if
there is a diversion or diversification of the export market to China. The consultation is
allowed, because Malaysia is a big exporter of solar panels to the US, according to the
Ministry of Trade and Industry (MITI). The government also required more information from
the US on the in-quota exemption application process. MITI also explained that in the sense
of the trade war, the consultation was not a response or retribution, but a clarification. (Tan,
2018).
The contribution of Malaysia to the steel and aluminium industry fromUS is very
limited. Since, Malaysia not a big exporter to China and US worldwide, it refer to Table 1
(Jasmin and Ayub, 2018). This related to the case of solar cells (HS 854140), which in Lists 1
and 2 are a significant export item to the US (Tables 2 and 3). Since solar safeguard tariffs
may have a direct affect exports from Malaysia to US and are also a significant export
industry, that we are providing this industry with a case study.
Table 1: 2017, Exports from Malaysia the Aluminium and Steel to the US, China and
the Whole World (US Dollars in millions)

Source: United Nations Commodity Trade Statistics Database, 2019

3.5.2 Setting Up Task Force

Next, in July 2018, MITI developed and set up a task force to track and review trends
in the conflict between the China and United Stateover trade. The task force is going to
concentrate on solutions to minimize the effect of protectiveism and function to share their
thoughts, feedback and ideas as a focal point for skaetsholdes (Invest Penang, 2018). This
means that Malaysia does not for any explanation, bypass US tariffs on China and stop
dumping. (Ho, 2018).

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 In its inquiries into the prospects for trade circumvention in the region, US trade
officials have at least visited the Ministry three times in 2018. The US Department of
Commerce (DOS) preliminarily decided that the anti-dumping duty on butt-weld fittings
from China had been circumvented by a company in Malaysia (The Star, 2018). Though there
are no clear tariffs circumvention laws in Malaysia, there are anti-document falsification
laws. To receive local certificates of origin, companies have to produce in Malaysia. MITI
plans to use the standards of the rules of origin in its Free Trade Agreements (FTAs) in order
to discourage false statements as to the origin of a product exported from Malaysia.
3.5.2.1 MITI Monitoring Targeted Tariffs
MITI introduced targeted tariffs in March until August 2018 with 25% on imports from
China worth USD50 billion. From the data in List 1 (25% of USD 34 billion on 818 products
will takes effect on 6 July) and (25% on 279 products worth USD 16 billion) in List 2. MITI
introduced 10% tariffs on USD 200 billion of imports from China in September 2018 from
list 3, and the tariff grew to 25% by January 2019.
3.5.2.2 MITI Monitoring Temporary Truce
MITI introduced temporary truce in December 2018 until March 2019 and on 1 January
2019, the US abstained from increasing temporary truce tariffs from 10% to 25%. In the
addition, MITI is also delaying the imposition USD 267 billion in tariffs on additional
imports of temporary truce from China.

Table 2: Share of the top 10 HS 6-digit export and re-export goods from Malaysia to
United States, 2017 (List 1)

Source: Developed based on DOS unpubliched data

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Table 3: Share of the Malaysia’s top 10 HS 6-digit export and re-export goods to United
States, 2017 (List 2)

Source: Developed based on DOS unpublished data

Table 4: Share of the Malaysia’s top 10 HS 6-digit export and re-export goods to
United States, 2017 (List 3)

Source: Developed based on DOS unpublished dataa

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CHAPTER FOUR: COLCUSION AND SUGGESTIONS

4.1 Conclusion

The global economy continues to be influenced by economic tensions between nations,

resulting from excessive protectionism, where states enforce trade barriers against each other.
The ongoing US-China trade war is getting nastier by the day, , causing harm not only to the
two economies involved, but also the other countries on the sidelines.(Cheng, 2019)

There is no doubt that conflict between the US and China are having adverse effects on
the global economy. Model simulations demonstrate that there are both direct and indirect
impacts of a trade war. Global trade flow become lower and affected the global economic
development as well as rising costs for households and manufactures. Indirectly, as global
supply chains are affected, rising uncertainty reduces consumer demand, raises borrowing
costs for companies and deprives global competitiveness. (SCMP reporter, 2019)

This could be more disruptive for Malaysia. Malaysia is not just a thin, free economy
with a heavy dependence on trade., it is also closely related with most of the global supply
chains of trade. In Malaysia, more than 82% of major companies and almost half of all
small and medium-sized firms are active in global supply chains. Besides that, Malaysia,
has a strong position in the Chinese economy.. China is not only its largest trading partner,
but also the main source of tourism. This implies that crisis in the Chinese supply chain
would have a negative effect on Malaysian exports (Harun, 2019).

Lastly, our country already take some action to avoid get affected by the economic
tensions between nations such as consultation, setting up task force, Miti monitoring
targeted tariffs and monitoring temporary truce.
4.2 Suggestions

Trade war between U.S and China triggers a huge impact on Malaysia’s economy
either pros or cons. However, for a long-term period, trade war will inflict serious damage on
Malaysia’s economy which may lead to the deterioration of a country. Therefore, some
suggestions must be taken to end the trade war between U.S and China.
4.2.1 Devaluation of exchange rate
One of the suggestions to end the trade war between U.S and China is to devalue the
exchange rate. Diminishing the value of the exchange rate can help to reduce a trade deficit.
The price of imported goods increases if depreciation happens therefore the quantity
demanded of imports falls. Exports will become cheaper. The lower the price of exports, the
larger the quantity demanded for exports. Therefore, assuming demand is relatively price
elastic, a devaluation expected to lead to an improvement in current account on the balance of
payments (Pettinger, 2019).
On a global market, competition between countries towards goods occurs
simultaneously. Agriculture manufacturers in America must compete with other agriculture
manufacturers in China. If the value of the RMB decreases against the dollar, the price of
agriculture sold by Chinese manufacturers in America, in dollars, will be effectively less
expensive than they were before. As a result, it will boost a country’s exports as exports
become more competitive in global market. In other word, exports are more encouraged
while imports are discouraged. Therefore, quantity demanded for exported goods increase

xxv
while quantity demanded for imported goods decreases which leads to devaluation of
exchange rate.

On a global market, competition between countries towards goods occurs

simultaneously. Agriculture manufacturers in America must compete with other agriculture
manufacturers in China. If the value of the RMB decreases against the dollar, the price of
agriculture sold by Chinese manufacturers in America, in dollars, will be effectively less
expensive than they were before. As a result, it will boost a country’s exports as exports
become more competitive in the global market. In other word, exports are more encouraged
while imports are discouraged. Therefore, the quantity demanded for exported goods increase
while quantity demanded for imported goods decreases which lead to the devaluation of
exchange rate.
4.2.2 Expenditure dampening and expenditure switching policies
The other ways to end the trade war between U.S and China are implementing
expenditure-dampening and expenditure-switching policies. Overall expenditure and imports
decrease as this policy implements and then reduce the outflow money of economy (Perera,
2016). Local manufacturers will feel demand for their products reduced as spending falls.
Hence, they tend to focus on foreign buyers. This policy is designed to reduce imports and at
the same time increase exports.
The bank might lower interest rates to cause devaluation in the currency if the current
account deficit. This situation may lead to the price of export goods become cheaper.
Moreover, hot money might flow out of the country when investors are not obtaining high
revenue on their investment. High interest rates could be expenditure dampening and the
demand for imports falls and inflation might fall. Spending on imports reduce as interest rate
become higher and enhance the current account.
A government can take action to make imports look more expensive and local goods far
more attractive through devaluation of the currency, introducing tariffs and quotas toward
import goods and providing grants and subsidies for local goods. Hence, domestic
consumption and spending on imports reduced. Therefore, trade deficit will be reduced and
then end the trade war between U.S and China.
4.2.3 Supply side policies
Besides, supply side policy is also a way to the end trade war. The government use
supply side policies as a premise for purpose to enhance an economy’s ability to provide
more goods (Chen, 2020).
Supply side policies can help a country to become more competitive by rising the
productivity with the growth of education and training. This will lead to a rise in exports.
This can enhance the current account position. However, it may take long period to have a
huge impact on a country’s economy.
For example, the efficiency of economy increases as the policy of privatization and
deregulation executed because of the profit incentive in the private sector. This increased
efficiency would convert into lower costs of production and more exports. Therefore, trade
war ends as trade deficit reduces by implementing supply side policies.

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 4.2.4 Consume less and save more
Government should urge all individuals to minimize consumption in daily lives.
Generally, the less you spent, the more you saved in our lives. If people are able to control
their expenses by planning and thinking, it will prevent people from being affected by the
economic instability of the world. In addition, the economic tensions between the nation has
impacted our country's export and import operations. The price would be higher for the
import of goods from another country. Therefore, individuals can shop in local-owned shops
and look for goods made in our area or country.
For example, if the grocery store sells olive oil produced overseas and one produced by
a local farm, we should choose the olive oil produced in our nation. Lastly, it will allow
people to increase their savings by purchasing local products and reducing the need for
imported goods (Freund, 2017)

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