Trump’s Tariffs: A Timely Signal to Revamp Our Automotive Policy
Malaysia’s Automotive Industry in a State of Flux
The recent announcement of a 10% tariff on all US trading partners by US President Donald Trump has sent shockwaves through the global automotive industry. For Malaysia, this development presents an opportunity to review its national automotive policy and reassess its role in the global market.
Challenges in the US-Malaysia Trade Relationship
The US has singled out Malaysia’s car import permit system as a discriminatory non-tariff barrier, which has led to a trade dispute. Even if Malaysia were to waive import duties on US-made cars, large-engine cars would remain a niche product in the Malaysian market.
Time for a New Approach
This is a timely signal for Malaysia to revamp its national automotive policy. The industry veteran’s warning that Malaysia’s automotive industry will not improve without serious investment in R&D centers is a stark reminder of the challenges facing the sector.
Malaysia’s Automotive Policy: A Review
Malaysia’s national automotive policy, introduced in 2006, aimed to position the country as a regional automotive hub. However, two decades later, the policy has failed to achieve its goals. The industry relies on tariffs, excise taxes, and local content requirements to shield domestic players, but this has not led to global competitiveness.
Regional Competitors Outpace Malaysia
Thailand and Indonesia have eclipsed Malaysia as automotive powerhouses, with Thailand dominating Southeast Asia’s automotive exports despite a 20% drop in car production last year. Indonesia is leveraging its vast domestic market and nickel reserves to attract EV investments, with a goal of building integrated supply chains.
The Rise of EVs and Changing Automotive Landscape
China’s EV industry has rewritten automotive economics, with firms like BYD and Geely prioritizing cost efficiency and vertical integration. Malaysia’s EV Blueprint, part of NAP 2020, lacks the scale and incentives to compete with regional rivals.
Malaysia’s Policy Framework: Out of Step
Thailand offers tax breaks for infrastructure investments and tax incentives for EVs, while Indonesia mandates nickel processing for EV batteries. Malaysia’s policy framework remains timid in comparison, with no tax breaks for plug-in hybrids and range-extended hybrids, and tax incentives for EVs set to expire in 2026.
Revamping the Policy Framework
Malaysia must revamp its NAP while outlining a path of transition for legacy investments in local car assembly. The government should extend the import tax holiday on EVs beyond 2026 and redefine EVs to include PHEVs and REEVs. Additionally, the government should withdraw or suspend the new excise duty on locally-assembled cars.
Conclusion
Malaysia’s automotive industry is at a crossroads. The country must balance its commitment to national car projects with the need to integrate into the broader markets of Asean and beyond. By adopting a new policy framework and moving away from protectionism, Malaysia can position itself as a niche player in EV components and leverage its existing infrastructure.
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The views expressed are those of the writer and do not necessarily reflect those of FMT.