Malaysia should position itself as the mediator of US-China trade war

By Jamari Mohtar & Lim Ji Yi

Witnessing the decoupling of the US and China, as shown in the heightened tension between these two superpowers in trade at present, one could hardly remember the US-China honeymoon period before the Trump administration. 

“Chimerica”, a term firstly coined by the historian Niall Ferguson and economist Moritz Schularick, reveals the symbiotic relationship between the US and China since the normalisation of their bilateral relations in 1979. 

After China obtained the membership of World Trade Organisation (WTO) in 2001, Chimerica developed speedily. As a result, China became the biggest trading partner of the US in 2018. 

According to World Trade Statistical Review 2020, the US and China were the top two exporters and importers in world merchandise trade in 2019, in which they shared one-fifth of the total world trade in the former and a quarter in the latter.

Given their big volume in world trade, they are undoubtedly the engines of the international economic growth and the stabilisers of the world trade. Hence, the ongoing trade war between the US and China will inevitably affect the global economy as well as the national economy of other countries.

However, when it comes to the effect on other countries, there is still no consensus among the experts.

Some suggest Asean will largely benefit from this – opportunities to replace Chinese goods on the American market and vice versa, and the prospect of East Asia turning into a self-sustaining economic entity. On top of this trade and investment diversions, as well as the possible relocation of some enterprises out of China to Asean could possibly happen too.

However, in terms of the long-term impact of the trade war, most analysts are of the view it remains a high-risk factor for Asean economies since focussing on short term gains is rather myopic. 

Experts at the Asean+3 Macroeconomic Research Office (AMRO) have speculated the trade war could wipe out approximately 0.2% to 0.3% of the Asean region’s GDP in 2019. Also, under the protectionist trade doctrine, the US government may impose sanctions on Asean member states too, should the diversion effect reach a certain degree. 

Therefore, Asean has the interest to stand together as one to oppose the trade war, and it is admirable this unity is achieved when its leaders had issued a joint statement in the Asean Summit 2019 to stand against the protectionism amid US-China trade war. 

However, the organisation should and can do more. It can act as a potential mediator between the US and China, representing the many third-party countries which have been experiencing the negative impact of the trade war. 

Several existing platforms, such as the Asean Regional Forum (ARF) and the East Asian Summit (EAS) should be utilised to its fullness to address our concerns regarding the trade war to both the US and China. 

Even though Malaysia is not the chairman of this year’s Asean Summit, we can still be an active advocator in pushing forward the mediation. It certainly is a win-win situation for the entire region due to the generally trade-dependent nature of the Asean economy, in which continuing trade war will only harm the economies of its member states. Moreover, Malaysia seems to be in a better position to play this role because our country is not a beneficiary of the US-China trade war. 

According to Calvin Cheng of the Institute of Strategic and International Studies (ISIS), Malaysia has so far not materially benefitted from any “trade diversion”. In fact, he reveals that Malaysia’s regional peers such as Japan, South Korea, Taiwan and Vietnam are the ones who have reaped most of the benefits from the trade war.

The so-called “investment diversion” to Malaysia arising from the trade war is also limited. Official foreign direct investment (FDI) data demonstrate that during 2018-2019, manufacturing sector FDI growth has fallen even as headline FDI growth accelerated – proving there’s no clear-cut evidence of “investment diversion”.

Given that Malaysia is the host for Asia-Pacific Economic Cooperation (APEC) 2020, we could also persuade both the US and China to take APEC 2020 as the platform for their upcoming bilateral trade talk. This calls to mind the anticipation of many parties of the supposed meeting between President Trump and President Xi in the previously cancelled APEC 2019. 

We should grasp this opportunity to position ourselves as the mediator between these two superpowers. Since the trade war began in 2018, most of the trade talks and negotiations involved only the US and China. However, their conflict has enormous spill-over effects over other countries. We should have a say in this regard, too. 

Malaysia is capable of playing the role of the mediator given the core of our foreign policy is to be friends with all and avoid taking sides. Malaysia is also an experienced peacemaker, as we are an important factor in the reconciliation between Manila and Mindanao as well as between Bangkok and its southern border provinces. 

A more proactive role in the US-China trade war is desirable in the context of the global economy being inflicted with the Covid-19 pandemic, more so as the continuous trade war is detrimental to our national interest. 

Jamari Mohtar and Lim Ji Yi are part of the research team at EMIR Research, an independent think tank focused on strategic policy recommendations.

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