It may take a while for Malaysia to see economic benefits of Biden presidency

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PETALING JAYA: Economists predict that the long term prospects for the Malaysian economy will be good under the incoming Joe Biden administration.

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But they expect some downsides in the short term.

Biden, who beat Donald Trump in last November’s presidential election, is expected to be inaugurated on Jan 20.

Paolo Casadio, an economist at HELP University, said Biden had shown indications that he would prioritise health and safety in the short term with Covid-19 case numbers in the US being the highest in the world.

“Biden will choose safety over growth while Trump seemed to be the complete opposite,” he said. “With Biden, we might see America saving its resources to combat what could be a long lockdown period.”

However, he said Biden’s less nationalistic view could see international trade as a whole improve as the pandemic began to end, adding that this could be some time away.

The relationship between the US and China, which was frosty during Trump’s tenure, will also have an effect on Malaysia. Improved ties could see negative spillover effects for Malaysia, particularly in manufacturing.

During Trump’s four years, companies explored the possibilities of moving parts of their supply chain out of China to avoid the tariffs levied against Chinese-made products when shipped to the US.

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Casadio said companies from the US and other Western countries might now no longer feel compelled to move out of China.

“Under Trump, companies had reason to move their operations – parts of them at least – away from China and were beginning to look at regional alternatives like Asean and Malaysia.”

World Bank Group lead economist Richard Record said there might be some short-term opportunities associated with trade and investment diversion for countries like Malaysia.

But he added: “”These gains tend to be wiped out by weaker investor confidence that affects everyone if tensions escalate.

This is what we saw in 2018 and 19, when there were some short-term gains in market share for Malaysia in the US at the expense of China and in China at the expense of the US, but then global growth and global trade slowed sharply due to the tensions.”

Record said Covid-19 had shown companies the need to diversify their supply chain and build resilience, making it likely that companies would still look to invest in parts of Asean even if China and the US were to mend fences.

“We are seeing a re-shaping of global value chains with firms increasingly trading off efficiency and lowest cost production locations against building supply chains that are able to withstand shocks. This trend may provide greater opportunities for Malaysia as an investment destination.

“Ensuring that Malaysia is able to attract not just the right quantity of investments, but more importantly the right quality of investments, means focusing on key fundamentals – improving the quality of human capital formation and of economic infrastructure, especially digital infrastructure, and improving market access and competitiveness.”-FMT

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