Ringgit Surges Amid US Tariff Talks: What You Need to Know!

Ladies and gentlemen, buckle up! The Malaysian ringgit is on the move, and you need to pay attention. The currency opened slightly higher against the US dollar amidst intensifying market talks on the impact of the United States' tariff on the global economy. The ringgit stood at 4.4275/4335 against the greenback, up from yesterday's close of 4.4280/4315. This is a big deal, folks, because the US dollar-ringgit pair would be languishing around RM4.42-RM4.44 as traders and investors are anxious about the impact of the US tariff on the global economy.

Now, let's break this down. The US dollar-ringgit pair is a critical indicator of market sentiment. The recent surge in the ringgit is not just a fluke; it's a reflection of the broader economic landscape. The US tariffs are taking center stage again following President Donald Trump's latest move to impose a 25% tariff on automotive imports to the US. Such a measure is likely to result in thousands of US dollar increase in prices for vehicles sold in the US. Mexico, Japan, South Korea, Canada, and Germany are the major sources of imports for the US automotive sector. This is a game-changer, folks, and you need to be ready for the ripple effects.

But wait, there's more! The ringgit was traded higher against a basket of major currencies. It appreciated against the euro to 4.7560/7625 from yesterday's closing of 4.7805/7842, went up against the British pound to 5.7013/7090 from 5.7161/7206 on Wednesday, and rose against the Japanese yen to 2.9428/9470 from 2.9498/9524 previously. At the same time, the local note was traded mixed against ASEAN currencies. It strengthened against the Thai baht to 13.0102/0359 from 13.0277/0453 on Wednesday, advanced against the Singapore dollar to 3.3009/3056 from 3.3104/3133 yesterday and inched up against the Indonesian rupiah to 266.8/267.4 as compared with 266.9/267.2 previously. However, it was almost unchanged against the Philippines' peso at 7.67/7.69 from 7.67/7.68 at the close yesterday.

Now, let's talk about the elephant in the room: the potential impact of US tariffs on Malaysian exports. The imposition of US tariffs could have significant implications for the ringgit's exchange rate and overall economic stability, both in the short and long term. In the short term, we're looking at increased volatility in the ringgit's exchange rate. The immediate impact of US tariffs would likely be increased volatility in the ringgit's exchange rate. As noted by Bank Muamalat Malaysia Bhd chief economist Dr. Mohd Afzanizam Abdul Rashid, market anxiety about the impact of US tariffs on the global economy could cause the ringgit to fluctuate. For instance, on March 25, 2025, the ringgit stood at 4.4275/4335 against the US dollar, reflecting market concerns about the potential economic fallout from US tariffs.

In the long term, the imposition of US tariffs could dampen Malaysia's economic growth prospects. Bank Negara Malaysia (BNM) has projected a GDP growth of 4.5% to 5.5% for 2025, but this forecast assumes a continuation of the global trade rebound. Mercury Securities highlighted that the April 2 tariff announcement is crucial in determining the country's growth prospects, as new trade measures could slow down the global economy and adversely affect Malaysia's export performance.

But here's the thing, folks: Malaysia's growing trade diversification and repositioning within the global tech value chain could provide some insulation against the long-term impacts of US tariffs. Public Investment Bank noted that Malaysia's trade diversification efforts and its role in the global tech value chain could help mitigate the adverse effects of restrictive trade measures. However, the extent of this insulation would depend on the magnitude and duration of the tariffs.

So, what can Malaysian companies do to mitigate the financial risks associated with potential US tariffs? They can absorb the tariffs, pass on the costs to consumers, and diversify their markets and supply chains. Each of these strategies has implications for operational costs and profitability. Malaysian companies can choose to absorb the impact of potential US tariffs on semiconductors. This means that the companies themselves will bear the additional costs rather than passing them on to consumers. Trade Minister Tengku Zafrul Aziz mentioned that discussions are ongoing with chip companies based in Malaysia to determine whether they can absorb the tariffs. This strategy can help maintain market competitiveness and customer satisfaction but will directly impact the companies' profitability. As Tengku Zafrul noted, "Exports will continue to happen but someone has to pay for the higher cost, whether it be the consumers or the companies that absorb it."

Another strategy is to pass the increased costs directly to consumers. This approach can help companies maintain their profit margins but may lead to reduced demand if consumers find the products too expensive. Tengku Zafrul highlighted this point, stating, "We're discussing with the companies... whether the tariffs will be absorbed by the consumers." This strategy can influence operational costs by shifting the financial burden to the end-users, but it may also affect sales volumes and overall market share.

Malaysian companies can also mitigate the risks by diversifying their markets and supply chains. This involves exploring new export destinations and reducing reliance on the US market. For instance, Malaysia has been attracting significant foreign direct investment (FDI) in sectors like data centres, cloud computing, and AI, which can help diversify its economic base. As mentioned, "Malaysia saw a substantial increase in foreign direct investment (FDI) throughout 2024. In early March 2024, Malaysia Prime Minister Datuk Seri Anwar Ibrahim announced that Malaysia had successfully attracted potential foreign investment amounting to MYR 76.1 billion." This diversification can help insulate the economy from the impact of US tariffs and reduce operational costs associated with supply chain disruptions.

The Malaysian government can play a role in mitigating the impact of tariffs by providing financial support or incentives to affected industries. However, as of now, there has been no indication that the government will provide such support. Tengku Zafrul stated, "The government has not discussed what it will do or whether it will provide financial support to offset tariffs." This lack of government intervention means that companies will need to rely on their own strategies to manage the financial risks.

In summary, the potential imposition of US tariffs on Malaysian exports could lead to short-term volatility in the ringgit's exchange rate and increased costs for exporters. In the long term, it could dampen economic growth and inflation, necessitating adjustments in monetary policy. However, Malaysia's trade diversification efforts and role in the global tech value chain could provide some insulation against these impacts. Malaysian companies can mitigate the financial risks associated with potential US tariffs by absorbing the costs, passing them on to consumers, diversifying their markets and supply chains, and seeking government support. Each of these strategies has implications for operational costs and profitability, and companies will need to carefully consider their options to minimize the impact on their bottom line.