KUALA LUMPUR (April 8): The weakening of the ringgit, historically a source of export advantage, may provide little to no buffer to exporters against the onslaught of the substantial 24% US reciprocal tariff on Malaysian goods that are set to kick in on Wednesday, economists warn.

"Historically, a weaker ringgit has offered a partial cushion during trade shocks by supporting export competitiveness. However, this time, the backdrop is more complex, with the US' aggressive tariff policies potentially nullifying any benefits from a weaker currency," Afiq Asyraf Syazwan Abd Rahim, an economist at Kenanga Research, told The Edge.

The implementation of US reciprocal tariffs, coupled with rising recession risks and a softening US dollar, could significantly disrupt global trade, Afiq cautioned. "When Trump announced sweeping reciprocal tariffs, the dollar initially slipped — reflecting growing unease over the US economic outlook," he noted.

Since the US' announcement of the reciprocal tariffs that it is imposing on its trading partners last Wednesday, the ringgit has weakened by 0.8% to trade at 4.49 against the US dollar on Tuesday.

About 70% of Malaysia's exports to the US is expected to be impacted by the reciprocal tariff, according to the Ministry of Investment, Trade and Industry on Monday. And about 60% of Malaysia's exports to the US are electrical and electronic products, and half of that is subject to the reciprocal tariff, while the other half are made up of tariff-exempt semiconductors.

Other regional currencies have also dived against the US dollar since the tariff announcement. Vietnam, which has been slapped with a stiff 46% US tariff, saw its dong fall by 1.45%, while the Thai baht dropped 1.41% and the Indonesian rupiah depreciated 1.06%. The Philippine peso weakened 0.16%, while the Singapore dollar lost 0.27%.

Economists believe that markets are now in a holding pattern, awaiting further clarity on US trade policy, expected on April 9.

The tariffs will potentially reduce consumer demand in the US, said Bank Muamalat chief economist Dr Mohd Afzanizam Abdul Rashid, as exporters will invariably have to pass on some of the tariff costs to buyers, which will end up being passed to the end-consumers.

"When US businesses start to increase prices to the end-consumer, we can expect moderation in the personal consumption expenditure (PCE), which makes up about 70% of the US economy," he said, referring to the primary measure of consumer spending on goods and services in the US.

"Hence, resorting to diplomatic negotiation is the best way to deal with this problem. At the end of the day, the US wants to have a fair trade that makes sense. However, the manner in which it is being done is extremely radical," he added.

Bank Muamalat anticipates the ringgit to remain near RM4.50 for the time being, given the uncertainty surrounding US tariff policies. The Bloomberg consensus forecast for the ringgit for end-2025 ranges from RM4.12 to RM4.70.

"Should the US be willing to budge their present stance, that could help improve the ringgit. I think not retaliating against the tariff move is a good start for Malaysia and Asean in general," Mohd Afzanizam said.

Meanwhile, Malaysia may still be able to leverage its position as a key player in regional supply chains, particularly as countries continue to diversify away from China, according to Kenanga Research.

"Though the environment is tough, Malaysia occupies a relatively favourable position — geopolitically neutral, economically open, and industrially diversified. That may lend the ringgit some resilience," Afiq observed.

Kenanga Research has maintained its year-end forecast for the ringgit at 4.45 against the US dollar, with the outlook dependent on the reciprocal tariffs and the US Federal Reserve's policy stance.

"Currency markets are likely to remain choppy in the near term as investors weigh the inflationary implications of Trump's proposed tariffs and any subsequent negotiations," Afiq stated.