Friday 21 Jun 2024
main news image

This article first appeared in Forum, The Edge Malaysia Weekly on April 22, 2024 - April 28, 2024

Talk abounds the world over concerning the future of international trade in an increasingly uncertain geopolitical environment.

Ongoing developments — including the intensifying rivalry between the US and China, the ill-fated Russo-Ukrainian war and the unmitigated bloodletting in Gaza, UN resolution enjoining a ceasefire notwithstanding — are bleeding into the economic realm, driving a 3% reduction in annual world trade in 2023 and placing the global economy on course to chart its weakest performance in three decades.

With the long-standing impasse at the World Trade Organization, the emergence of inward-looking geoeconomic policies like the US’ CHIPS Act, and a global shift towards regionalism in trade, the writing on the wall is clear: the future of trade and economic integration is no longer tied to the hyper-globalisation and multilateralism of yesteryear. Instead, this will be a decade marked by intensifying protectionism, both executed overtly and under discrete guises, such as friend-shoring and decoupling, and a heightened focus on securing supply chains.

Sticking to a tried-and-tested strategy

In response, Malaysia is sticking to a tried-and-tested strategy of playing the field by courting major economies on both sides of the prime meridian.

Bilaterally, we have strategic partnerships with Australia, China, Japan, India and the US, alongside seven bilateral free-trade agreements (FTAs). Regionally, Malaysia is party to the Regional Comprehensive Economic Partnership (RCEP), Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Indo-Pacific Economic Framework (IPEF) and seven other Asean-led FTAs, placing ourselves firmly in the centre of competing economic spheres of interest across the East and West.

This forward-looking connectedness has helped Malaysia benefit despite these global shifts. Last year, total export value surpassed RM1 trillion for the third year in a row despite a downturn in commodity prices. Total approved investment figures reached a record high of about RM330 billion, of which nearly 60% was from international sources, signalling investors’ confidence in Malaysia as a stable, dynamic and reliable destination for foreign direct investment, thus nailing the lie to frivolous claims by detractors that the Madani government is losing traction with foreign investors.

Need to adapt strategies for uncertain future

But global risks continue to test Malaysia’s resolve on trade openness and economic nonalignment. On the horizon is the escalation of US-China tensions, which could rise to a crescendo affecting the geopolitical arena, particularly with Donald Trump’s potential re-election. The risk scenarios are manifold as pundits foresee that a change in US leadership will usher in an era of even more hostile trade and industrial policy, from the derailment of IPEF and increasing American isolationism to potentially greater militarisation in the South China Sea.

Indeed, as the arithmetic of geoeconomics takes centre stage, trade in the future may increasingly become a zero-sum game: strengthening ties with one major power for the sake of more market access or other economic privileges could come at the expense of a competing major power.

This is an existential challenge for Malaysia as a highly open economy whose total monetary value of trade stands at nearly 1.5 times gross domestic product, a ratio that has grown since the mid-2010s. An output of our maturing manufacturing sector and related services, trade is the backbone of the economy.

Currently, Malaysia sits comfortably in the heart of a largely stable Southeast Asia but it is foolhardy — even perilous — to assume that we will always be able to reap the fruit of our strategic location and resource endowments.

Preparing for tomorrow’s uncertainty means building greater resilience today. To this end, there are no shortcuts but to redouble our efforts to enhance our economic complexity. Malaysia is currently ranked number 28, according to the Economic Complexity Index, but must ultimately diversify its mix of trade partners and export products — reducing reliance on the great powers of the world and seeking newer emerging sources of trade and growth.

Despite our strong outward-looking macroeconomic fundamentals, including more than two decades of almost uninterrupted quarterly trade surpluses, the thorn in the flesh is our risk of becoming dependent on the great powers when the luxury of hedging between them no longer becomes viable. The data suggests that Malaysia’s trade networks are less diversified than some major Asean economies, with China, Singapore and the US alone making up more than 40% of total trade.

Malaysia as champion of South-South cooperation

In the diversification agenda, one often overlooked growth opportunity is for Malaysia to champion greater South-South cooperation. According to the United Nations Conference on Trade and Development, total trade between developing countries is valued at more than US$5 trillion as of 2021, exceeding North-South trade flows and growing faster than the world average. This suggests that many parts of the developing world still see substantial value in building economic bridges with the international community at large even in the face of rising protectionism and trade barriers.

Indeed, Malaysia was once at the forefront of the Global South’s development agenda in the 1980s and 1990s, recognising the role that post-colonial economies in sub-Saharan Africa, Latin America and Asia could play carving out their own future as the global majority. The 7th and 8th Malaysia Plans included an explicit chapter called “Development Through International Cooperation”, highlighting explicit commitments to regional and global arrangements we championed, such as Asean, Commonwealth, Organisation of Islamic Cooperation, Group of 15 (G-15) and Asia-Africa Forum.

Since then, however, Malaysia’s role on the international development stage has diminished. While our economic planning rightfully prioritises the facilitation of international trade, the broader pursuit of international cooperation could certainly be enhanced with greater inter-ministerial coordination.

As it is, other Asean countries are strategically capturing the vacuum left by Malaysia’s muted role in South-South cooperation. Indonesia has a Coordination Team for South-South Cooperation straddling four ministries while Singapore’s programme includes a special partnership package to train African civil servants, in addition to extensive programmes alongside France, the UK and the US.

The time is now

The time has come for Malaysia to take back the lead in fostering South-South cooperation, not only as a strategy for trade diversification but also to show solidarity with the global majority.

To achieve this, we first need to counter naysayers who dismiss the economic viability of a Global South by pointing to internal challenges or political dysfunction within a handful of developing nations. Malaysia is in an advantageous position to address this concern because of its stability and economic development, its status as a middle power rather than a great power, and its track record in economic cooperation.

Second, Malaysia must adopt a whole-of-government approach to international cooperation. Ministries — including those covering the portfolios of foreign affairs; investment, trade and industry; economic affairs; finance and education — need to learn from one another. Malaysia must form an outcome-oriented interministerial body to oversee all aspects of South-South cooperation.

Last, we should have a targeted strategy for countries in the Global South based on their respective comparative advantages, needs and geography. For instance, hard trade liberalisation through tariff cuts and the reduction of other trade barriers is a reasonable approach for Asean but not for many countries in sub-Saharan Africa, which would benefit more meaningfully from technical exchange as well as memoranda of cooperation in key sectors like agriculture and chemicals.

Presenting yet more propitious prospects for growth are the halal industry and Islamic finance, through which Malaysia is perfectly placed to share knowledge and best practices as well as expand trade capacity with markets across North and West Africa as well as West and South Asia.

Ultimately, as uncertainty becomes the only real certainty in the global landscape, we would do well to remember not to put all our eggs in one basket. Strengthening South-South cooperation emerges not only as a means to safeguard trade links but also as an opportunity for Malaysia to forge broader economic ties with the frontier economies of tomorrow. Through this, Malaysia may yet assume its role on the global stage in spearheading the upward trajectory of the developing world.

Datuk Prof Dr Mohd Faiz Abdullah is chairman of Institute of Strategic and International Studies (ISIS) Malaysia

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.

      Text Size