When news of the trade war between the U.S. and China in steel broke out in March/April earlier this year, the Malaysian iron and steel industry jumped into alert. Malaysia was, after all, caught by the Section 232 tariffs on steel and aluminium (for harming the local U.S. steel industry), and the first response was to assess the impact of the indictment by looking at Malaysia’s steel trade with the U.S.

In 2017, Malaysia’s exports of iron and steel products into the U.S. stood at approximately 164,000 metric tonnes, compared to the U.S. steel demand of 97.7 million metric tonnes. Malaysia’s exports into the U.S. were merely 0.17% of its domestic demand—hardly damaging to the U.S. steel industry. In 2016, Malaysia’s exports were lower still, notching at just approximately 45,000 metric tonnes, compared to U.S. steel demand of 91.9 million metric tonnes (0.18%).

Looking at Malaysia’s iron and steel exports to the U.S. as a percentage of total iron and steel exports for 2017 and 2016, the figures came up to 5.3% and 2.0% respectively. In 2017, Malaysia’s main steel export markets were ASEAN (27.7%), South Korea (15.0%), the E.U. (8.5%), and India (6.8%)—totaling just shy of 60% of all iron and steel exports—with the U.S. coming next in this list.

From a statistical standpoint, Malaysia’s steel exports did not pose as a real threat to the U.S., nor was the U.S. market—while not negligible to Malaysian exporters—pose as a significant concentration risk. Thus Malaysia’s indictment under Section 232 was certainly unfair, but not to the point where massive economic damage was felt by Malaysia directly.

That is, if we were to assess the situation narrowly on the trade war’s direct impact.

Recently, Pantech Group Holdings Berhad reported that its carbon steel butt-weld fittings business arm, which are manufactured in Meru, Selangor and exported to the U.S., have been caught in the U.S.-China crossfire via U.S.’s anti-circumvention laws. In the E&E sector, manufacturers have begun considering relocating or shifting operations to Malaysia’s ASEAN neighbors such as Vietnam and Thailand to reduce exposure to U.S. tariffs imposed on Malaysia, particularly if the exposure prolongs. In recent years, Malaysia has been forced to compete more stiffly against its ASEAN neighbors with bigger markets and bigger developing economies; an FDI outflow would come as a double-blow to Malaysia’s economic development ambitions.

The fact of the matter is that a trade war of this magnitude between two of the world’s largest economies engenders indirect ramifications that are perhaps more damaging and wide-ranging than they initially appear. Being a small actor on the global stage, Malaysian industries are at the mercy of giants. The lack of transparency in the enforcement of Section 232 in conjunction with the haste of its implementation have forced industries into an uncomfortable position of prolonged firefighting, draining valuable time and resources. Furthermore, it may just be a matter of time before deflected Chinese steel imports from the U.S. begin to end up on Malaysian shores, as countries continue to erect trade walls in response, and the local steel industry is forced to confront another potential dumping of cheap steel that was last suffered in 2013—2015.

One of the few mitigating actions that Malaysia has at its disposal is a fervent defense of legitimate interests against all unfair and unjustified trade actions levied upon its industries, no matter the “magnitude” of the affected industry. Malaysia has yet to exempt itself from the net of Section 232, and the basis for urgency should not be motivated primarily by trade statistics. In contrast, urgency should be imposed based on the indirect impacts and more needs to be done to holistically assess the potential damages from these impacts, including impacts to jobs and salaries, FDIs, spillover effects on other industry value chains and ultimately, the consumer market. The dedicated task force set up by the Ministry of International Trade and Industry to monitor the ongoing trade war is a good step in this direction; otherwise by the time indirect impacts on the Malaysian economy are truly felt, it may just be a little too late.

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