The US-China trade war is having a negative impact on Malaysia. Not only is Malaysia a small and open economy with a relatively high dependence on trade, much of that trade is also deeply integrated with global supply chains. Over 82 per cent of large firms in Malaysia and nearly half of all small to medium sized enterprises participate in global value chains. Besides, Malaysia has a high degree of exposure to the Chinese economy, with China being both its largest trading partner and a top source of tourists. This means that disruptions to the Chinese supply chain will have significant knock-on effects on Malaysian exports.

The global economy as a whole is also affected. Directly, it dampens global economic activity through lower global trade flows as well as increasing prices for households and manufacturers. Indirectly increased uncertainty curtails business investment, increases financing costs for businesses and depresses global productivity as global supply chains are disrupted.

It has been almost a year since the first round of US tariffs was imposed on Chinese imports. Since then, the United States has imposed two additional rounds of tariffs on China, which has retaliated by levying its own tariffs on US goods. Fresh US tariffs on Chinese goods are due to take effect in September.