What the US-China trade war means for Malaysia

Trump’s announcement of reciprocal tariffs has kicked US-China competition up a notch, but the implications will be felt more broadly than between just these two main belligerents in this trade war. When Trump announced his ‘Liberation Day’ tariffs on 5 April, among those countries initially set to receive the highest tariffs were many that are counted among the ASEAN bloc (Association of Southeast Asian Nations), including Vietnam (46 percent), Laos (48 percent), Myanmar (44 percent) and Cambodia (49 percent) with Malaysia on 24 percent.

The logic was clear. These are among the countries in the world with the highest trade surpluses with the US, their entire economies being oriented towards exports and highly dependent on the US market. These sky-high tariffs may have been paused, but it is clear that in one way or another, Trump is also gunning for them. And tariff pauses notwithstanding, Malaysia and other ASEAN countries have still been slapped with 10 percent tariffs. The US-China trade war is putting the capitalist model of Malaysia to the test, and preparing massive instability in the region.

The Malaysian capitalist model in crisis

The turbulence in world capitalism and the US-China trade war are presenting a dilemma for the Malaysian ruling class. In the past they have benefited from ASEAN’s trademark ‘neutrality’ and ‘non-alignment’, that is, maintaining economic and political relations with both China and the US.

This is critical for the functioning of Malaysia's capitalist model. Like most of the ASEAN economies, it is heavily reliant on an export-oriented manufacturing sector. Trade is vastly important for the country’s economy. The trade to GDP ratio of Malaysia in 2023 was 130 percent. Much of its growth over the past two decades was due to the pouring of foreign investment, largely from the US, Europe, and China, into this sector. In fact, the ASEAN area is one of the most trade-dependent regions of the world, with trade to GDP ratios of 300 percent in Singapore, 166 percent in Vietnam and 144 percent in Cambodia.

Cheap labour costs relative to the advanced capitalist world, and its strategic location near the Malacca Strait, an important artery in world trade, allowed Malaysia to be a jumping off platform for investment into the rest of the Southeast Asian market.

Malaysia's dependence on American investment and markets can be seen with its electrical and electronics industry, which was built by American companies such as Intel and AMD from the 1970s. This industry now accounts for nearly 40 percent of Malaysia’s total exports, much of it going to the United States.

Likewise, large amounts of Chinese capital have flowed into Malaysia especially since the 2010s – in chipmaking, renewable energy, EV manufacturing, etc. China has also been Malaysia’s largest trading partner since 2009, and is its second largest foreign investor, if one includes investments from Hong Kong.

The turbulence in world capitalism and the US-China trade war are presenting a dilemma for the Malaysian ruling class / Image: public domain

Steady growth in world trade and a relative stability of US-China relations have allowed economic growth based on this delicate balancing act. In fact, even with the beginning of the trade war in 2018, the ASEAN economies benefited as foreign companies invested in them to avoid dependence on China, in what was known as the ‘China+1’ strategy. However, the intensification of the trade war has turned this balancing act into a weakness.

The Malaysian capitalist class is reluctant to lean too close to any one imperialist power, lest they lose investments and market access from the other. Other ASEAN economies like Thailand and Vietnam, also being reliant on the same export-oriented model, face the same dilemma.

Already, China has taken the opportunity after Trump’s tariffs announcement to present itself as a more reliable and predictable partner for Malaysia and ASEAN than the US. That was the main message of Xi’s visit to Vietnam, Malaysia, and Cambodia that immediately followed Trump’s announcement. But while welcoming a strengthening of ties with China, the Malaysian ruling class are anxious that it does not come at the expense of relations with the US. In short, the ASEAN economies are forced into an impossible position to choose between the two imperialist powers.

Until recently, some had held the vague hope that the ASEAN trade bloc could form the basis of something like a European Union of South East Asia, that by drawing together politically as well as economically, it could assert something of an independent line.

The crisis of the European Union shows that that model hardly offers rosy prospects anymore. But even that level of unity isn’t possible for the ASEAN countries. Unlike the EU, which has Germany and France at its core as medium-sized imperialist powers holding it together, there is no major power at the core of ASEAN that could give it cohesion. There is therefore no common policy among the ASEAN bloc, with some leaning more towards the US and others more towards China.

The Singaporean capitalists have attempted to play something of an imperialist role in the local region, and have some ambitions of becoming the dominant force within ASEAN, exporting capital that is invested in other ASEAN economies. However, their position is itself dependent on the openness of a globalised world economy, with Singaporean capital taking advantage of being a clearing house for both American and Chinese capital. This position is becoming more precarious.

As trade barriers go up and capital withdraws its tentacles behind national barriers, the whole bloc is enormously exposed.

For now they are attempting to resist and find some sort of solution. Hence the ASEAN leaders ruled out retaliatory tariffs, and jointly preferred negotiation with the US and the maintenance of the status quo. But if the US-China conflict continues to intensify, this position of facing both ways will become more and more untenable, with dire consequences for their economies.

Can China save Malaysian capitalism?

To weather the impact of these tensions, the Malaysian ruling class is scrambling to diversify its partnerships. On the one hand, they are trying to draw closer to other powers such as the Gulf Cooperation Council (GCC), the EU, and Russia. On the other hand, they are seeking to tighten up relations with other ASEAN member states – encouraging more regional trade and investment. But these small, relatively backward economies cannot survive on their own, and at the end of the day this does not solve their problems.

There is a growing realisation among the ruling classes of Malaysia and ASEAN that China is the most influential economic power in the region / Image: Kremlin.ru, Wikimedia Commons

There are those among the ruling class that do indeed see China as a saviour of Malaysian capitalism. There is a growing realisation among the ruling classes of Malaysia and ASEAN that China is the most influential economic power in the region.

According to a 2025 report by the ISEAS-Yusof Ishak Institute, which surveyed ASEAN business elites and government officials, “China remains the most influential economic (56.4%) and political-strategic (37.9%) power in the region, outpacing the US by significant margins,” although with smaller margins than last year.

In response to the question “If ASEAN were forced to align itself with one of the strategic rivals [the US or China], which should it choose?”, Malaysian respondents clearly chose China for the second year running (70.8 percent in 2025 and 75.1 percent in 2024). But for the ruling classes of ASEAN as a whole, the picture is more divided, with 47.7 percent favouring China and 52.3 percent favouring the US, a similarly even split to last year.

But closer relations with China are not without its problems. There is still the prospect of cheap Chinese goods flooding the country and destroying domestic industries, especially as Chinese overproduction worsens and America’s tariffs remain. Indonesia had already fallen victim to this ‘dumping’, with 80,000 workers in its textile industry being laid off last year because of competition with China. Similarly, nearly 2,000 factories closed down in Thailand in 2023. Vietnam also fell prey to an influx of Chinese steel and aluminium.

The ASEAN economies are nowhere near able to compete with the vast productivity of China. Some have already implemented or are mulling protectionist measures against this onslaught – Vietnam, for instance, has applied an anti-dumping tariff on Chinese steel, and Indonesia has considered up to 200 percent tariffs on certain Chinese goods.

Even before the latest trade war, some were pulling towards China, others towards the US. Trump’s belligerent tariff policy can push the ruling classes to build closer relations with China, but the other side of the equation is that now the Chinese have lost access to the US market, fears of competition from Chinese commodities being diverted and dumped on ASEAN markets will grow. The relationships between the ruling classes of the region and China are thus contradictory and it is by no means easy to foresee in which direction they will be pushed.

Attacks on the working class

The outcome of these shifts in world relations cannot be predicted with certainty. But whatever that outcome is, there are no good tidings for Malaysian capitalism.

The general uncertainty over the world economy is not favourable for continued foreign investment into Malaysia. Foreign capitalists will think twice before investing in a country that can, at any moment, be slapped with higher tariffs by the US. This is especially true of businesses that manufacture products specifically to be shipped back to the US, such as the semiconductors industry, which make up 25 percent of Malaysian GDP.

As such, a boom similar to the 1990s or a period of steady growth as before, borne of high foreign investment and increasing world trade, is increasingly unlikely.

Many had dreamed that the ASEAN economies were destined to follow the road of China. Large amounts of foreign investment had enormously developed China, leading to a rise in living standards and the growth of a powerful domestic capitalist class. The hope was that, as ASEAN attracted foreign capital – partly as an alternative to China with capital being relocated for strategic reasons, and partly thanks to lower labour costs as wages rose in China – this would assist in developing powerful economies in this region.

But as protectionist tendencies have risen as a result of the organic crisis of world capitalism, these hopes have been dashed. Even if the higher rate of Trump’s reciprocal tariffs are not resumed, a 10 percent blanket tariff is enough to raise prices substantially. At the end of the day the burden of these tariffs will be pushed onto the shoulders of the working class in the form of higher prices and through job losses as capital relocates.

Anwar Ibrahim’s unity government, as representatives of the ruling class, has carried out cuts on top of this cost of living crisis / Image: Firdaus Latif, Wikimedia Commons

The bourgeoisie will attempt to attack wages to maintain their profits as their products become less competitive on the world stage. Other businesses that cannot compete will close down factories and throw workers on the scrapheap. Already Chinese solar panel manufacturers have packed up and left over the new tariffs imposed by the US, with rates reaching as high as 250 percent. The exit of Chinese companies over last year’s tariffs have put 5,000 workers at risk.

Intensification of the class struggle

Growth rates only tell one side of the story. Despite the steady growth of 3 to 5 percent since the pandemic, the conditions of the working class in Malaysia are worsening, as they are elsewhere. The cost of food and basic necessities, which ballooned in recent years, have not come down to any livable level for wide sections of the population.

Anwar Ibrahim’s unity government, as representatives of the ruling class, has carried out cuts on top of this cost of living crisis. This period of economic uncertainty will only add to the discontent against the Pakatan Harapan government, which is already under pressure from several fronts, as we have written before.

This stormy period for world capitalism will exacerbate the political and social turmoil in Malaysia and the whole region. This instability will only propel class struggle forward, as we have seen in the form of mass struggles erupting in recent years, most recently in Indonesia. The masses everywhere are looking for a way out of the crisis, and they are learning from each other across national divides.

But what is needed is Marxist ideas and leadership for the struggling masses, and Ombak Revolusi is constructing just that in Malaysia as a part of a Southeast Asian and world struggle for socialist revolution.