WITH Donald Trump’s odds of winning the US Presidential Election in November 2024 soaring, global markets and investors are anxious about what Trump 2.0 would mean for the US and global economy.
The US economy is in good shape. Economic growth rate is decent (2021-2023: 3.4% per annum; 2024: estimated 2.7%, the unemployment rate of 4.1% in June 2024 is near historic lows; wages are rising and household net wealth has risen by around US$40 tril since the pandemic.
The US Federal Reserve is more confident that inflation (June 2024: 3.3%) is slowing to its 2% target, thus allowing interest rates cut in the near-term.
But the global economy remains in a sticky spot. In July, the International Monetary Fund (IMF) maintained global growth estimates at 3.2% for 2024 and 3.3% in 2025. Upside risks to inflation remained amid escalating trade tensions and increased policy uncertainty.
Moreover, geopolitical rivalries and conflicts have been intensifying, and have greatly complicated the challenges facing the global economy. If left unmanaged, this can compromise global growth as well as economic and financial stability.
On the US economy and inflation, Trump has said he will rapidly re-build the world’s largest economy while reiterating his promises to lower taxes, slowing inflation and bringing down interest rates.
Nevertheless, Trump’s pro-growth policies will likely be accompanied by more bumps along the inflation path, raising the prospects of a shallower interest rate easing.

China’s retaliation
As it is, Trump’s team is eyeing two bills to kick off a second term: a border-security and immigration package, and an extension of his 2017 tax cuts which will expire in early 2025.
Trump is considering a plan to impose tariffs of 60% or higher on Chinese goods as well as a blanket 10% tariff on all the US imports. This will not only help to raise tax revenue but to protect US manufacturing companies.
While the planned extension of the 2017’s Tax Cuts and Jobs Act (TCJA) would be positive for corporates and consumer spending, trade tariffs would mean higher prices for consumers while also pushing up business costs.
The proposed mass deportation of 15 million to 20 million undocumented migrants coupled with restricted inflows of visa-holding migrant workers would put pressure on the already tight labour market condition and wages.
With the labour cost keeping the stubborn inflation at bay, the Fed would take longer time to cut rates or may even push interest rates higher. The possible consequence is a stagflation in the US economy.
The proposed extension of tax cuts could add an estimated US$4.6 tril to the US budget deficit over the next decade, leading to bigger debt problems while push up long-term interest rates and ratcheting up protectionism.
On China, the prospect of trade and technology tensions between the US and China under Trump 2.0 administration will likely intensify, heightening the risk of triggering a full-blown trade war with China if the scaling up the trade tariffs and barriers is followed by China’s retaliation.
A September 2019 study by Moody’s Analytics found that the trade war had already cost the US economy nearly 300,000 jobs and an estimated 0.3% of real GDP. Other studies put the cost to US GDP at about 0.7%.
Trump’s recent remarks that key production hub Taiwan should pay the US for its defence on top of repeated accusations that Taiwan had taken “almost 100%” of the US’s semiconductor industry has also heightened investors’ concerns over global semiconductor supply chain.
This may compel the chips makers to diversify their operations outside of Taiwan under the Taiwan-plus-one strategy.
The likely impact on Malaysia
In 2023, the US was Malaysia’s third largest trading partner with a total trade share of 9.5%, exports share (11.3%) and imports share (7.3%).
It is also Malaysia’s third largest foreign investor with 10.9% share of FDI (foreign direct investment) outstanding stock as of end-2023. Approved US investments in the manufacturing sector during the period totalled RM18.1 bil or 14.1% share of Malaysia’s total foreign investment approvals in 2023.
Currently, Malaysia is the sixth largest semiconductor exporter globally with 13% of the global market share for chip packaging, assembly and testing services. Malaysia also plays a pivotal role in the global tech industry by supplying 25% of semiconductor components that power the US’s technology demands.
At one end, the US-China trade and tech rivalry will benefit Malaysia not only via continued trade diversion. During the Trump administration’s slapping of trade tariffs with China in 2018-2019, imports from Malaysia to the US grew by 7.7% per annum in 2018-2022.
Doubtlessly, Malaysia remains a hotspot for the reconfiguration of sourcing and supply chain under China +1 and Taiwan +1 strategy.

Malaysia’s National Semiconductor Strategy to court at least RM500 bil in investment value in IC (integrated circuit) design, advanced packaging and manufacturing equipment as well as wafer would spur intense interest from foreign multinationals looking to start new plants or expand their existing manufacturing activities.
That said, Trump has further pledged a blanket 10% tariff on all imports to the US if he becomes President again. Southeast Asian countries with big trade surpluses with the US could become a target for Trump.
Malaysia has enjoyed a sustained trade surplus averaging RM46.2 bil per year in 2017-2023 since the US-China trade war with the trade surplus widening to RM72.3 bil in 2023 from RM23.4 bil in 2017.
These enlarge surpluses raise the possibility risk of Trump may consider slapping import duties on Malaysian products.
On the capital flows and ringgit, the potential inflationary aspects of Trumponomics would compel the Fed to either cut interest rates slowly or at least keeping the rate higher for longer.
This could cap the ringgit’s rise against the US dollar amid a narrower interest-rate differential. The capital reversal back to the emerging markets, including Malaysia, would remain volatile. – July 22, 2024
Lee Heng Guie is the executive director at Socio-Economic Research Centre (SERC) Malaysia.
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
Main image credit: Reuters