Illustration shows Malaysia caught in a trade tug-of-war between BRICS, led by China, and the U.S. under US President Donald Trump’s tariff push.
By TENGKU NOOR SHAMSIAH TENGKU ABDULLAH
KUALA LUMPUR, July 17 – A fresh wave of U.S. trade protectionism is poised to sweep across the global economic landscape, directly challenging nations like Malaysia. Following President Donald Trump’s recent declaration of an additional 10% tariff on countries perceived to be aligned with BRICS’ “anti-American policies,”
Malaysia finds itself at a critical juncture, caught between its deepening economic ties with China and the potential wrath of Washington. With rising yuan-based trade and increasing engagement with BRICS+ initiatives, the long-held notion of neutrality for Malaysia appears increasingly untenable.
In an exclusive interview with TNS News, Alicia García Herrero, Chief Economist for Asia Pacific at the French investment bank Natixis, offered a pointed assessment of the unenviable choices confronting Malaysia and, by extension, the ASEAN region.
Beyond Transshipment: The De-dollarization Dilemma
García Herrero illuminated the dual motives behind Trump’s impending tariff policy. “First, he wants to avoid China transshipping its trade through other nations—and Malaysia is one of them. So that’s already a problem,” she explained, highlighting Malaysia’s strategic position as a manufacturing and logistics hub that could be seen as a conduit for Chinese goods.
Alicia García Herrero, Chief Economist for Asia Pacific at the French investment bank Natixis
However, the more significant threat, according to García Herrero, lies in efforts to diminish the U.S. dollar’s global dominance. “If Trump imposes tariffs, they’ll likely target countries building payment systems to help the de-dollarization,” she cautioned.
She cited emerging alternatives such as Omniclear in Hong Kong, which is directly competing with Euroclear, and the evolving BRICS Bridge – a cross-border payment platform. “All of that signals a serious challenge to the dollar-based financial system,” she asserted.
Malaysia’s Costly Calculation: Strategic Shift or Risky Gamble?
Malaysia’s ¥102 billion in yuan-denominated trade in Q1 2025 undeniably marks a significant shift towards diversifying its currency exposure. García Herrero stressed that this is far from a mere pragmatic engagement; it’s a strategic move with profound implications. “There’s a trade-off between protecting yourself by building or joining new payment systems, and the risk of U.S. retaliation,” she elaborated.
Should Malaysia fully embrace the BRICS financial architecture and accelerate its pivot away from the dollar, it must be prepared for swift American countermeasures. “If Malaysia believes that China is the way forward, then it must prepare to shield itself from American backlash,” she stated. While this path offers a degree of autonomy, it comes at a steep price. “As of today, it’s very costly,” she warned, alluding to the significant infrastructure and transactional expenses involved in shifting away from established dollar-centric systems.
A No-Win Scenario: The Price of Picking a Side
The economist painted a grim picture of Malaysia’s constrained options. Attempting to appease Washington by curbing Chinese transshipment or imposing tariffs on Chinese imports would invite “massive retaliation from China.” She referenced Vietnam’s cautious steps in this direction, questioning the long-term sustainability of such a strategy.
“So, in a way, you are caught between a hard rock and a hard place. You’re going to pay no matter what. It’s very hard for anybody to remain neutral in the current circumstances,” García Herrero concluded. Malaysia, she believes, is now compelled to choose “the best option out of two worse options,” as the era of unfettered globalization gives way to one demanding clear economic and strategic alignment.
ASEAN’s Fragile Unity and Malaysia’s Role
The looming tariffs have the potential to severely strain ASEAN’s unity, potentially pushing certain members further into China’s economic orbit while others strive to maintain their alignment with the U.S. García Herrero’s analysis suggests that Malaysia’s traditional role as a unifying force within the bloc will face unprecedented pressure as individual nations prioritize their own survival in this fracturing global system.
While the discussion touched upon defense mechanisms such as capital controls, currency swap lines, or reserve diversification, García Herrero’s overarching message underscored that these are secondary to the fundamental strategic choice Malaysia must make. The nature of its alignment will dictate the most effective protective measures.
The Rise of a Multipolar Monetary System
The ongoing evolution of BRICS financial architecture, from expanded RMB networks to a unified payments platform, undeniably signals a nascent multipolar monetary order. “Yes, Trump is likely to impose sanctions or punitive tariffs eventually,” García Herrero reiterated, emphasizing that these developments are perceived in Washington as a direct challenge to the dollar’s supremacy.
Malaysia’s participation in these new financial networks could foster greater Ringgit regionalization and deepen ASEAN’s financial integration. However, this transition will necessitate significant systemic reforms and robust resilience strategies, as it entails moving away from a long-established financial paradigm.
Navigating Vulnerabilities and Niche Opportunities
While García Herrero refrained from singling out specific sectors, it’s evident that Malaysian export-oriented industries with significant exposure to the U.S. market – such as electronics, automotive, palm oil, and tech – stand to be most vulnerable to higher tariffs. This could lead to increased costs for both businesses and consumers, potentially impacting manufacturing and supply chains.
Conversely, emerging sectors like Islamic fintech, Halal services, or regional digital platforms that align with the burgeoning BRICS or ASEAN financial architecture may find new opportunities. However, García Herrero was quick to add that such gains would invariably come with “geopolitical costs.”
The End of Economic Neutrality
García Herrero’s insights deliver a compelling message: Malaysia’s longstanding strategy of deftly balancing between East and West is rapidly approaching its limits. “In this environment, choosing not to choose is no longer viable,” she concluded. “Malaysia must decide whether to continue navigating between competing powers—or to chart a new path, knowing that either direction carries a price.” The coming months will be crucial in defining Malaysia’s economic future in a world increasingly defined by stark choices.
About the Expert: Alicia García Herrero is Chief Economist for Asia Pacific at Natixis, an adjunct professor at the Hong Kong University of Science and Technology, a Senior Fellow at Bruegel (Brussels), and a non-resident Senior Fellow at the East Asian Institute at the National University of Singapore. She is also an independent board member at AGEAS Group. Based in Hong Kong, she is widely regarded as one of the most influential European economists on Asian affairs.
- TNS NEWS