Malaysia must take advantage of geopolitics as US-China rivalry intensifies

THE global economy is entering a turbulent period, with fears of financial uncertainty, not to mention the unfolding drama of bank failures and supply chain disruptions amid renewed conflicts complicating geopolitics.  

Yet, a trading nation like Malaysia, so firmly linked to the global multilateral trading system (with total trade at 131% of its GDP), is underutilising a crucial tool to safeguard its strategic geo-economic interests – proactive economic diplomacy. 

The current political rhetoric in the United States is gradually shifting away from globalisation while advocating decoupling from China. While we don’t intend to conjure the ghost of Kipling’s declaration that “East is East and West is West (and never the twain shall meet)”, such a retreat signifies that Malaysia must keep pace with international developments, even as the world becomes increasingly bifurcated. 

Malaysia must be prepared to both compete with its structural rivals and balance its relations with strategic partners on the world stage and improve industrial competitiveness while promoting the country as an attractive destination for investment. 

In the 21st century, proactive economic diplomacy can only be viewed effectively and practised from the prism of the rules-based multilateral system even as we must preface this mantra with the caveat that reform and new ideas are sorely needed. This means that the articulation of economic diplomacy must include the language of geopolitics and geo-economics.  

Digital key to growth 

The government has identified the digital economy as a key area for economic growth. It promotes and actively supports its development under the “Malaysia Digital” initiative and the 12th Malaysia Plan. The ICT sector enjoyed significant growth during the pandemic, reaching 10.1% in 2020 and 12.1% in 2021, contributing RM359 billion or 22.6% to GDP.  

Fintech and digital payments likewise flourished among consumers, with opportunities to expand the range of financial services offered through digital platforms. However, when compared with its regional peers, Malaysia still falls short. According to 2020 UNCTAD data, Malaysia’s digital service exports made up 49% of all service exports compared with 56% among our regional peers.  

Hence, Malaysia must pursue a more proactive economic diplomacy to bring in the investments necessary to enhance digital skillsets and complexity. Malaysia should begin exploiting recent trade pacts, such as the Regional Comprehensive Economic Partnership, touted as the world’s largest FTA, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (the new gold standard of FTAs) to expand export opportunities for digital platforming and seamless services. 

Chips, green investments  

Malaysia’s semiconductor industry, which accounts for nearly 7% of the world’s trade and contributes 6.8% to GDP, should also take centre stage. The recent passing of the US$52 billion (RM233 billion) CHIPS Act, aimed at onshoring semiconductor production to the US mainland, has intensified the US-China rivalry, with China also unveiling a US$150 billion 10-year semiconductor master plan. South Korea plans to spend nearly US$65 billion on its semiconductor plan and the European Union, a US$49 billion microchip blueprint. 

These developments are indicative of a gradual devolution in the global supply chain to a multipolar ecosystem, with the two superpowers on opposite ends of the spectrum and other players in between. Malaysia’s neutral stance in the international arena, supported by its domestic engineering capabilities, could position her favourably amid the rivalry. Thus, if Malaysia could engage with multipolar networks, it would gain an edge in one of the world’s most lucrative and competitive industries.  

This is no flight of fancy, for Malaysia should seize on its comparative advantage in the back-end supply chain of the technology-neutral chip assembly and testing sector to capitalise on emerging opportunities. Offering interoperability and links with major supply chains could help Malaysia maximise its economic benefits amid intensifying competition. Malaysia should also promote its “technological neutrality” to address the challenges of balancing its strategic relations with global powers.  

Likewise, Malaysia must promote its green energy transition to meet its net zero GHG emissions pledge by 2050, no doubt a proclamation of virtuous intent if not altogether a pipe dream as detractors would mention. Nevertheless, such a proactive stance is necessary to attract the right kinds of green-led foreign investment, promote the adoption of sustainable practices and create a vibrant green investor market. 

Malaysia must start championing a positive international image by showcasing its unique model of localising UNSDGs, coordinating environmental policies in the developing world, and advocating for more North-South collaboration in developing renewable energy. 

Out of Asia into Africa 

A more proactive economic diplomacy also means improving bilateral relations with the Global-South, particularly Africa, which is projected to become a key supplier of the world’s labour force and middle-class consumers. Some analysts estimate that an industrialised African continent could reach an immense combined GDP of US$29 trillion by 2050.  

Enhancing the awareness of trade opportunities and targeted negotiations with high-potential nations to reduce transfer costs could unlock an abundance of long-term opportunities. Key industries that could benefit from increased African engagement include the downstream halal economy, Islamic finance, consumer goods, and palm oil.  

Malaysia must also urgently address food inflation due to disruptions and uncertainties in the international agro-food supply chain. Engaging in proactive foreign diplomacy involves forging strategic partnerships with global food producers to stabilise agricultural inputs.  

The severe manpower shortage in the agricultural sector requires Malaysia to rethink its agro-food approach and promote youth interest and foreign investments in vocational, educational, and training programmes in improved farming practices. This warrants a more nuanced and structured approach than the oft-played song and dance about the importance of TVET.  For starters, look at forging ties with strong agro-tech nations like the Netherlands. The Asean Integrated Food Security Framework should also be better leveraged to seek regional partners in food production, trade and logistics.    

In an age of economic and geopolitical uncertainty, Malaysia must engage assertively through its various diplomatic levers to drive growth and promote investment to foster deeper, more vibrant commercial linkages. Plodding along and making marginal gains is the game of a benchwarmer whereas Malaysia must take the plunge into the global arena to realise its potential through a bold, coordinated, and strategic approach involving the government, private sector, academia, and think-tanks.

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