Navigating the U.S.–China Decoupling: Malaysia's Response to the U.S.–China Trade War

Abstract This paper examines the impact of the current U.S.–China trade war on Malaysia. Malaysia's neutral stance leaves possibilities open for trade and investments from both sides. Our survey shows that the negative impacts have been minimal so far. The country seeks to capitalize on the trade war by promoting local industries that are substitutable to those from the United States and China. Efforts to improve competitiveness by improving physical and digital infrastructure, facilitating small- and medium-sized enterprises to export, and promoting potential domestic suppliers are being made to ensure favorable conditions to receive foreign direct investment relocating from China or the United States. Malaysia is also cooperating with its regional partners to further mitigate the effects of the trade war. Malaysia may, however, be its own greatest enemy in capitalizing from the trade war because the decline in human capital is making it difficult to harness the benefits from upcoming deglobalization headwinds.