Question

The trade war between the U.S. and China has been in the headlines for sometimes. The trade war comes as a shock and significantly affects countries and companies across the globe. Discuss the impact of the trade war on Malaysia at least in the following ways.

1. Explain the mechanisms of the trade war and its current state.

2. Analyse how the trade war has been affecting Malaysia.

3. Make a prediction on the impact of the trade war on Malaysia for the remaining of the year.

* This is International Financial Management  essay question . So the answers have to be lengthy and fully explained thank you.

Answer 1

INTRODUCTION TO TRADE WAR

A trade war is an economic conflict resulting to one country retaliating  against another country by raising import tariffs or placing other restrictions on the opposing country's import.

US CHINA TRADE WAR STARTED ON MARCH 22 ,2018 WHERE TRUMP DECLARED THAT THE UNITED STATES WOULD IMPOSE 25% TARRIF ON $50 BILLION OF CHINESE EXPORTS DUE TO CHINESE THEFT OF U.S. INTELLECTUAL PROPERTY.

1)Explain the mechanisms of the trade war and its current state.

Answer:

MECHANISMS OF TRADE WAR

US imposed 25% tariff on china's export to promote and boost domestic business and jobs and to try and achieve that country impose tariffs.

Tariff is simply a tax on you levy on imports of Chinese products into U.S. and that is simply done to get the other country back down and then the trade war happens when instead of backing down it retaliate. It's a misperception thinking that you can back down other country but then it doesn't happen and they escalate and you also don't have any option but to escalate and soon both sides find themselves in a situation where no one can exit.

WHY THIS TRADE WAR STARTED?

Back in 2017 the U.S. began looking at the china's trade policies and decided that deficit between the amount of the goods coming into the U.S. from China compared to the amount being exported to china was too great. And then the U.S. government then imposed billions of dollars tariffs on some Chinese goods coming into the U.S. In return China issued its own round of tariffs on some U.S. imports

CURRENT STATE

Malaysia's economy slowed in the first quarter of 2019, as ongoing U.S. China trade tensions took their troll on the country's exports. The US China war has not only directly affected the economic activity globally, but also has indirectly reduced business investment, increased finance cost and a fall in the global productivity due to disruption on the supply chain.

Malaysia has a high degree of exposure to the the Chinese economy, since 50% of Malaysia exports are incorporated into China's final product,which are then exported to the US, hence adverse effect on the Chinese supply chain will directly affect Malaysia exports. Malaysia has been a bait to it's changes since it's a small country. it;s 82 percent plus large and point 5 million USD.

Financial diversion of global trade to regions other than china of US dollar 165 million. since every coin has 2 sides to it so does the diversion of global trade from china to other regions in Asia, is that it will eventually offset the benefits that malayisa gained by the diversion, since chinese supply directly affects malayisa.

Hence on a concluding note it would be fair to say that their is no negative impacts of the trade war on malaysia.

2) TRADE WAR HAS BEEN AFFECTING MALAYSIA IN CERTAIN WAYS:

As a small open economy, Malaysia will inevitably be affected by escalating global trade tensions. The impact of trade tensions to the economy can be assessed via the trade, income and investment. Malaysia is primarily affected by trade channel. Malaysia's export are expected to be affected directly via lower demand from affected countries and indirectly via slower production in the global value chain. If trade intensify further, the downside risk to export growth will be more severe.Lower export orders and proceeds would also have a negative bearing on firm's profitability. As a result reducing the investing power of the company.Also it is estimated that Malaysia has potential gains which includes products in which it already has meaningful presence in the US coupled with ability to ramp up production capacity.   A trade war is bad for the U.S. and China and will adversely affect the rest of the world through supply chains and financial markets. As currently China is Malaysia's largest trading partner, constituting 13.5%

3)PREDICTIONS

The U.S. China trade war is predicted to add around 0.1 percentage points to Malaysia's gross domestic product. Manufacturers based in china might shift some of their operations in Malaysia. Investors of China might want to invest in Malaysian industry rather than investing in China or U.S. Economy of Malaysia might rise due to more exports from Malaysia to other countries.The projected benefits from the trade war will add to growth momentum in Malaysia, which is picking up as consumption and investments in the country.Country will boost it's economy in coming years.