US ‘hegemonic tariff’ will not make America great again

Photo: VCG

Sustaining hegemony is selfish in nature, especially when hegemony is in decline. The nature of the US wielding the tariff baton, sanctioning other countries' officials and companies is a "hegemonic tariff."

This can be defined by a series of its behaviors, including cracking down on Chinese tech giant Huawei and lobbying its allies to reject Huawei's 5G technology without solid proof; blacklisting Chinese companies for their alleged connections with so-called human rights issues in China's Xinjiang Uyghur Autonomous Region; declaring trade wars against the world; frequent military interventions in other countries' domestic affairs, claiming human rights are superior to sovereignty, and overthrowing governments of other countries.

Take trade wars. China is not the only target of the US. Washington has not even cut its allies some slack. Since 2018, not only Venezuela, Cuba, Ukraine, Turkey have been hit by US sanctions. Quite a few of traditional US allies, including Canada, Japan and South Korea, have also been sanctioned by the hegemonic power. Washington's goal is simple: To protect its domestic market and expand foreign markets to maximize global trade. This philosophy is also called "America First," and the US believes it is able to seek more interests through hegemonic means.

While the US is busy charging its "hegemonic tariff," it is putting the blame on China. The Atlantic published an article on Saturday entitled "The NBA-China Disaster Is a Stress Test for Capitalism," claiming "Chinese companies, furious over [US] public sympathy for Hong Kong, were swift in their vengeance. They suspended licensing agreements with the NBA." It then concluded that firms with business in China pay "values tariff."

This is deliberately confusing right from wrong. It shows the US does not respect Chinese sovereignty, while even wishing to impose its own values and political views on the Middle Kingdom.

Hegemonic measures are no longer effective. Trade lasts only when based on mutual respect, equality and mutual benefit. When US companies make money from around the world, they can achieve their goals smoothly only by complying with others' laws and respecting their public opinion.

However, Washington is now becoming increasingly narrow-minded and selfish, regarding mutual benefit as US losses. Worse, it is asking the world to compensate for its losses, urging others to make contributions to "America First" through political, financial and military means.

The Atlantic article noted "the partnership between the NBA and China, which is worth billions of dollars over the next decade, is now in jeopardy." This is exactly the consequence of the US obsessing over hegemony as well as the US obsessing with its so-called moral high ground.

China will not pay a penny for the US "hegemonic tariff," and will take countermeasures to take back what the US has seized from it. The chances of the US profiting from its hegemony are dwindling.

The key to making America great again is to boost the country's competitiveness and innovation, rather than slapping "hegemonic tariffs."

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Broad measures spelt out under Budget 2020 will likely sustain the economy, if there is no further escalation in trade fights.

A glimmer of hope emerged after the US outlined the first phase of a deal to settle some issues related to trade, but there is a lingering suspicion that China could be just buying time as it will most likely not concede to any loss of sovereignty.

China is developing its own ecosystem that could be “outside the reach” of the US, and it is possible that the time bought with such rearguard actions may allow China to achieve its aims.

Malaysia, a trade dependent economy, can only hope that it all works out well, if it can integrate into both ecosystems, said Inter-Pacific Securities head of research Pong Teng Siew.

More stimulus measures would be undertaken should the global economy worsen and in the worst case scenario, Malaysia would have room to spend more if it increases the budget deficit, currently at 3.2% of the gross domestic product (GDP).

The worry is that a further deterioration in global trade tensions may push the global economy into recession. If that does not happen, these Budget 2020 measures should be able to sustain the economy, according to RHB Research Institute chief Asean economist Peck Boon Soon.

Given the external headwinds that continue to pose more downside risks, it looks like Budget 2020, which attempts to spread out its positive effects, has been designed to brace for rough times.

Some positive impetus could be derived from measures to support tourism, construction and infrastructure, as well as small and medium scale enterprises (SMEs), said AmBank Research head Anthony Dass.

Tourism-related businesses such as food and beverage, accommodation, travel and transport, shopping and entertainment will likely benefit.

Recognising the importance of SMEs in driving growth, a string of measures to facilitate their financing needs, ease of doing business, faster adoption of high technology and green initiatives, should also bode well.

The bottomline is that resources are limited while the government still aims for fiscal consolidation and repayment of all debts.

Spreading out these scarce resources will probably succeed in paring off any broad-based slowdown, but it will be hard to make a dent when the sense of a loss in economic momentum is gradually settling in, said Pong.

More measures are required to stimulate the economy but in view of the gloomy global outlook and domestic issues, it is still overall, a good budget.

However, the allocation between capital and operating expenditure is still imbalanced; there is too little capital expenditure and there appears to be ‘little effort’ to reduce operating expenditure.

This will have a long term effect, especially in an aging society, according to Areca Capital CEO Danny Wong. In view of concerns over the lack of investments and falling revenue, efforts to boost foreign direct investments and tourism are welcome but more robust steps are required.

A correction in property prices may be a remedy for the overhang and inaffordability issues especially among young people.

The budget tries to forestall a price pullback, which would affect developers stuck with high land prices, by allowing foreigners to fill the demand gap.

But demand has evaporated, partly caused by the migration of mid-level talent and delays in household formation, the driver of long term demand and new home construction. Developers, lulled by the padding of demand through low interest rates for borrowers, high financing margins and easy access to debts, find it hard to lower prices.

They had thought the elevated level of demand was sustainable but it was not. Reduced prices may mean less profits but possibly a lifeline by way of cashflows, and may help restore delays in household formation and loss of talent, said Pong.

A worrying trend is that more and more young Malaysians are moving out of the country in search of jobs.Even mid-level expertise and talent is migrating; previously, it was mostly those who were highly mobile internationally.

A major cause is the lack of growth in real purchasing power.

Is the projected GDP growth of 4.8% achievable?

With the government continuing its spending and development initiatives, growth should remain robust, supported by services and construction, higher production from agriculture and mining. But manufacturing is expected to moderate.

Malaysia can achieve its 4.8% growth target, said Hong Leong Bank chief operating operating officer, global markets, Hor Kwok Wai.

However, in view of slower world GDP growth of 2.8%, AmBank Research expects growth of 4.0% with an upside of 4.3% for Malaysia.

Coming up with a further set of stimulus, should things worsen, may be a challenge.

Columnist Yap Leng Kuen is watchful of the tech war. The views expressed are the writer’s own.

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KUALA LUMPUR (Oct 11): The following are the highlights of Budget 2020:

Malaysian economy

• Budget 2020 has four thrusts including boosting economic growth in new economy and digital era, investing in people.
• Approved foreign direct investment has inreased to RM80.1 billion in 2018 from RM54.1 billion in 2017.
• Proctrated trade war offers Malaysia unique opportunity to become choice destination for FDI with high added value
• Overall debts and liabilities ratio to GDP lowered to 75.4% in 2018 from 79.3% in 2017, but is expected to rise to 77.1% as at end-June 2019. This is largely due to the increase in the committed government guarantee to continue to MRT and Pan Borneo Highway, and RM20 billion bailout of Tabung Haji. Govt saved at least RM46 billion in capex from rationalising megaprojects including LRT3, MRT 2 and ECRL.
• Malaysian economy to grow at 4.8% in 2020 vs 4.7% in 2019
• The government revises Budget 2020 deficit target to 3.2% of GDP, which is slightly higher than the 3% originally announced in Budget 2019.
• Lower public revenue in 2020 in absence of Petronas special dividend
• Government expects RM26.8 billion SST collection in 2019
• Government's tax revenue up 3.4% to RM180 billion in 2019
• With weakening growth in government revenue, tax reforms necessary
• Higher development expenditure of RM56 billion
• Only 1% growth on exports in 2020
• Malaysia’s current account surplus to narrow to 1.9% of 2020 GNI
• 2% inflation in 2020, to be lifted by the introduction of targeted fuel subsidy
• Unemployment rate to remain healthy at 3.3% in 2020
• Service sector to be the fastest-growing sector of the economy
• 4.1% growth in the manufacturing sector in 2020
• Agriculture sector to grow the slower pace at 3.4%
• Stronger growth of 3.7% in construction sector in 2020, vs 1.7% in 2019
• Mining sector growth to moderate to 0.3%
• Govt will sell assets (approved previously) via competitive bidding to realise their potential; this is expected to generate more than RM3 billion revenue in 2020.

Government

• The Bureau of Public Complaints will be replaced by the Malaysian Ombudsman to enhance govt's governance and delivery systems
• Govt to move forward with the formation of the Independent Police Complaints and Misconduct Commission (IPCMC) to increase public confidence and trust in police.
• Japan Bank for International Cooperation (JBIC) offers to guarantee additional tranche of Samurai bonds with lower interest rate of less than 0.5% compared with 0.63% previously. The federal government plans to issue the bonds early next year. Issuance size to be determined after further discussion with JBIC.
• Home Ministry to receive RM16.9 billion boost for 2020.
• Allocation for Islamic affairs under PM's Dept increased to RM1.3 billion from 1.2 billion in 2019
• Govt has set up National Committee on Investments (NCI), chaired by Minister of Finance and Minister of International Trade and Industry
• Allocation for Defence Ministry raised from RM13.9 billion in 2019 to RM15.6 billion in 2020

1MDB

• Bandar Malaysia  project will now proceed and include a People's Park, with 5,000 units of affordable homes and greater Bumiputera participation. Proceeds from the project will be valued and announced in due course, and will be used to reduce 1MDB's debts.
• Govt to pay RM2.4 billion to service 1MDB and SRC International's debt interest in 2019, and a further RM2.7 billion in 2020

Corporate, finance and fintech

• Govt will continue to ensure at least 30% of tenders of each ministry are reserved for only Bumiputera contractors
• 50% matching grant of up to RM5,000 to increase the digitalisation of operations for Malaysian small and medium enterprises (SME)
• RM50m allocation proposed to encourage SMEs to engage in more export promotion activities
• Govt to provide extra RM50m for SC's My Co-Investment Fund (MyCIF) to assist SMEs that have difficulties in getting financing
• Govt to merge Bank Pembangunan Malaysia, Danajamin Nasional, SME Bank and EXIM Bank Malaysia to restructure development financial institutions (DFI)
• Govt allocates RM1 billion in investment incentives to attract Fortune Fortune 500 companies and global unicorns
• Govt to offer special investment incentive package worth RM1b per year for five years to local companies capable of penetrating overseas market
• Additional RM10m allocation to be set aside for MITI to increase monitoring to ensure approved investments are realised
• Government evaluating Carey Island development feasibility for next growth phase
• Govt intends to develop a 100-acre logistics hub at Special Border Economic Zone at Kota Perdana in Bukit Kayu Hitam to strengthen trade relations with Thailand
• National Fiberisation & Connectivity Plan will adopt public-private partnership approach involving total investment of RM21.6b
• RM20m allocation for Cradle Fund to train and offer grants to high-impact technology entrepreneurs
• Licensing for digital banks to be opened for public consultation by year end. A framework is expected to be released in 1H2020
• Digital bank licensing framework will be finalised by Bank Negara and open for application in the first half of 2020
• Govt to allocate additional RM50 million to Malaysia Co-Investment Fund (MyCIF) to benefit equity crowdfunding platforms and peer-to-peer (P2P) financing platforms.
• Ceiling on Market Development Grant (MDG) by Malaysia External Trade Development Corporation (Matrade) raised to RM300,000. Cap on entry to export exhibitions also raised to RM25,000. RM50 million allocated to encourage SMEs to join promotional activities.

Entrepreneur

• RM445m Bumiputera entrepreneur development grant for access to financing, provision of business premises, entrepreneurship training
• Govt to provide loans worth RM100m under Small Industries Entrepreneurs Financing Scheme for Chinese community
• Govt to provide RM20m in loans under entrepreneur development scheme for Indian community Govt to allocate RM500m as guaranteed facility for women entrepreneurs via Syarikat Jaminan Pembiayaan Perniagaan Bhd (SJPP)
• Skim Jaminan Pinjaman Perniagaan will be enhanced, with the government guarantee raised to 80% of the loan amount while the guarantee fee is reduced to 0.75%. A RM500 million guarantee facility has been set aside especially for women entrepreneurs.
• SME Bank will introduce two new funds: a RM200m fund specially for women entrepreneurs, and a RM300m fund to support SMEs with potential to become regional champs
• Ministry of Entrepreneur Development to give RM10 million for advisory services and awareness for the halal industry
• Tax incentives for venture capital and angel investors will be extended until 2023
• Govt jobs worth RM1.3b dedicated for Bumiputera contractors

Internet and tech

• Mandatory Standard on Access Pricing (MSAP) has successfully reduced broadband prices by 49% and increased speeds by three times
• RM250m will be set aside by MCMC to prepare broadband access via satellite technology to increase connectivity in rural Malaysia, especially Sabah and Sarawak
• Matching grant fund of RM25m will be set aside to encourage more pioneer digital projects that benefit fibre optic infrastructure and 5G
• RM20m allocated to MDEC to groom local champions in producing digital content
• RM50 million grant to develop 5G ecosystem to prepare for  5G transformation worldwide
• Smart automation matching grant (up to RM2m) for 1,000 local manufacturers and 1,000 services companies to automate business processes
• To boost use of e-wallets, govt to offer one-time RM30 digital stimulus to qualified Malaysians aged 18 and above with annual income less than RM100,000
• 14 one-stop digital improvement centres to be set up in every state to faciltiate access to financing, development of business capacity
• RM10m to be set aside for MDEC to train micro-digital entrepreneurs and technology experts to leverage e-market places, social media platforms
• Digital Social Responsibility (DSR) is commitment from business sector to enhance workforce with digital skills needed by society. Contributions from the private sector to the DSR will be given tax
• R&D in public sector to be intensified with RM524 million allocation to ministries, public agencies exemptions.
• Government to up e-sports allocation to RM20m due to high potential
• Green Investment Tax Allowance (GITA) and Green Investment Tax Exemptions (GITE) extended to 2023 in line with sustainable development

Palm oil

• Govt has launched palm oil replanting loan fund worth RM550m for smallholders
• Govt to implement B20 biodiesel for the transport sector by end-2020. This is expected to increase palm oil demand by 500,000 tonnes per annum.

Rubber

• RM200m set aside for 'Bantuan Musim Tengkujuh' to eligible rubber smallholders under RISDA, Lembaga Industri Getah Sabah
• RM100 million allocated for Rubber Production Incentive in 2020 to enhance income of smallholders faced with low rubber prices

Agriculture

• Allocation for Agriculture and Agro-based Industry Ministry increased to RM4.9 billion, including RM150 million to support plant integration programmes such as for chilli, pineapple, coconut, watermelon and bamboo.
• RM855 million allocation under Federal Government Padi Fertilizer Scheme to boost padi yield

Civil servants

• Civil servants’ emoluments to exceed RM82 billion
• Civil servant pension will cost RM27.1 billion
• Civil servants' cost of living allowance or COLA to be raised by RM50 a month starting 2020 for support group, with an additional RM350 million a year
• Civil servants will be allowed early redemption of accumulated leaves (gantian cuti rehat) for up to 75 days as replacement pay for those who have served at least 15 years
• Govt announces RM500 special payment for civil servants Grade 56 and below. Govt retirees to get special payment of RM250, also extended to non-pensionable veterans
• Govt to allocate RM330 million to the Property and Land Management Division under the Prime Ministers Department to repair and maintain the public service quarters. Meanwhile, RM150 million and RM250 million is set aside to repair and refurbish Malaysian Armed Forces family housing units (RKAT) and PDRM quarters.
• Fire fighters to get a special allowance of RM200 a month, which will benefit 14,400 personnel under the Fire and Rescue Dept, amounting to RM35 mil.

Highway and tolls

• The Cabinet has approved the proposed offer to acquire four highways in the Klang Valleyy – Shah Alam Expressway (KESAS), Damansara-Puchong Expressway (LDP), Sprint Expressway (SPRINT) and SMART Tunnel (SMART) to be funded via Government-guaranteed borrowings.
• Citizens to enjoy average 18% discount on all PLUS highways
• Effective Jan 1, 2020, toll rates for cars at the Second Penang Bridge will be reduced from RM8.50 to RM7.00.

Public transport

• RM450 million proposed to acquire up to 500 electric buses for public transport in selected cities nationwide
• Govt intends to proceed with the Rapid Transit System (RTS) between Johor Bahru and Singapore.
• It will also invest RM85 million beginning 2020 to ease congestion at the Causeway and 2nd Link by enhancing vehicle and traffic flow through the Customs, Immigration and Quarantine Complex.

Fuel subsidy

• Individuals owning not more than two cars and two motorcycles can get fuel subsidy for one vehicle. The qualifying criteria are:

• A passenger car with 1,600cc engine capacity and below, or
• Any car above 1,600cc must be more than 10 years old, or
• A qualified motorcycle must be 150cc and below, or
• Any motorcycles above 150cc must be more than 7 years old.

• From January 2020, the targeted fuel subsidy or PSP will be launched in Peninsular Malaysia with two eligible categories as follows:

• For eligible recipients of the BSH, the petrol subsidy receivable will be RM30 per month for car owners and RM12 per month for motorcycle owners. This subsidy will be in the form of cash transfer, deposited into the recipient's bank account every 4 months. The first payment will be made in April 2020 for the period January to April 2020; and
• For all other motorists who are not BSH recipients, they will receive a special Kad95 which allows them to enjoy the fuel subsidy at a discount of 30 sen per litre limited to 100 litres per month for cars or 40 litres per month for motorcycles when purchasing RON95 at the petrol station. The Kad95 will be implemented progressively during the first quarter of 2020.

Taxes

• Govt will merge Special Commissioner of Income Tax and Customs Appeal Tribunal into the Tax Appeal Tribunal, to be operational in 2021. Through this, taxpayers unhappy with the decision of IRB director-general or the Customs D-G can appeal
• Govt proposes that a new band for taxable income in excess of RM2 million be introduced and taxed at 30%, up 2 percentage point from the current 28%. This will affect approximately 2,000 top income earners in the country.
• Govt has repaid GST refunds amounting to RM15.9b to more than 78,000 companies, and income tax refunds of RM13.6b to 448,000 companies and 184,000 taxpayers

Medical and Healthcare

• To support local medical device industry, government will introduce an initiative to encourage local producers to upgrade equipment and tools used in public clinics and hospitals, based on a minimum allocation of 30%.
• RM227m to be set aside to upgrade medical equipment, and RM95m to renovate infrastructure and medical facilities, like in Hospital Pontian
• RM1.6 billion to build new hospitals and upgrade existing ones. The hospital includes Tengku Ampuan Rahimah Klang, Hospital Kampar, Hospital Labuan and the Queen Elizabeth II Hospital, Sabah Heart Centre.
• Govt to allocate RM60m for pneumococcal vaccination for all children
• RM319m to build and upgrade health and dental clinics and quarters facilities; new clinics will be built in Setiu, Sg Petani, and Cameron Highlands, as well as Kudat and Tawau in Sabah, and Lon San and Sg Simunjan in Sarawak
• Health Ministry to get RM30.6 billion allocation, compared to RM28.7 billion under Budget 2019

MySalam

• MySalam to be expanded so that those with critical illnesses will get RM8,000 cash; those being treated in govt hospitals can also claim RM50 wage replacement a day for up to 14 days

Islamic finance

• Islamic Economic Blueprint to be formulated to position Malaysia as centre of excellence for Islamic finance
• Special Islamic Finance Committee to be set up to develop the Islamic finance ecosystem

FELDA

• An allocation of RM810 mil for Federal Land Development Authority (Felda) settlers, including boosting their water supply and roadwork upgrades, and programmes to increase their earnings.

Property and housing

• RPGT base year for asset purchase revised to Jan 1, 2013 for asset acquired before that date
• To reduce supply overhang of condominiums and apartments amounting to RM8.3 billion in the second quarter of 2019, govt will lower the threshold on high rise property prices in urban areas for foreign ownership from RM1 million to RM600,000 in 2020.
• Govt to extend Youth Housing Scheme administered by Bank Simpanan Nasional from Jan 1, 2020 until Dec 31, 2021. The scheme also offers a 10% loan guarantee via Cagamas to enable borrowers to get full financing and RM200 monthly instalment assistance for the first two years, limited to 10,000 home units.
• Public Sector Home Financing Board to offer free personal accident insurance for up to two years to new government housing loan borrowers
• To help those who can't come up with 10% deposit or get financing to buy homes, govt will collaborate with financial institutions to introduce the rent-to-own (RTO) financing scheme, where up to RM10 billion will be provided by the financial institutions, with the governnment supporting via a 30% or RM3 billion guarantee.

• This RTO scheme is for purchase of first home up to RM500,000 property price.
• Under this scheme, the applicant will rent the property for up to 5 years and after the first year, and the tenant will have the option to purchase the house based on the price fixed at the time the tenancy agreement is signed.

Gaming Industry

• To curb illegal gambling, govt proposes a higher minimum mandatory penalty of RM100,000 for illegal gamblers, along with a minimum mandatory jail sentence of six months.

• For illegal operators, a higher minimum mandatory penalty of RM1 million and a 12 month minimum mandatory jail sentence will be imposed.

• To curb illegal gambling, govt proposes a higher minimum mandatory penalty of RM100,000 for illegal gamblers, along with a minimum mandatory jail sentence of six months.
• Starting 2020, total number of special draws for Numbers Forecast Operator (NFO) will be reduced from 11 to 8 times a year..

Employment

• Hiring fresh graduates: Two-year pay incentives of RM500 a month. Hiring incentive of RM300 a month.
• Incentives to get women into the workforce:

• Two-year pay incentive of RM500 a month
• Hiring incentive of RM300
• Tax exemption for women returning to work will be extended until 2023.

• Govt revises Employment Act, including increasing maternity leave from 60 days to 90 days from 2021
• Govt proposes to raise minimum wage in urban areas to RM1,200 a month in 2020
• Govt to launch Malaysians @ Work initiative aimed at creating better employment opportunities for youth and women, reducing over-dependence on low-skilled foreign workers
• Malaysians who replace foreign workers will get a monthly wage incentive of RM350/RM500 for two years, depending on the sector. Employers will get a monthly incentive of RM250 a month throughout the same period.

Tourism

• RM25 million allocated to Malaysia Healthcare Tourism Council to strengthen Malaysia's position as the preferred destination for medical tourism in Asean for oncology, cardiology and fertility treatments.
• Govt to contribute RM100 million towards construction of new cable car system to Penang Hill
• RM1.1 billion allocated to Ministry of Tourism and Culture, of which RM90 million is specifically for VMY2020 promotion and programmes

Sabah and Sarawak

• Govt plans to double special alowance for Sabah to RM53.4m and Sarawak to RM32m; this to be doubled further to 106.8m for Sabah and RM64m for Sarawak in five years
• RM587 million allocation for rural water projects, of which RM470 million will be for Sabah and Sarawak
• RM500 million for rural electrification benefiting more than 30,000 rural households, majority in Sabah and Sarawak

Aid and subsidies

1. Govt to spend RM24.2 billion on subsidies and social assistance
2. RM100 million grant proposed for Malaysian Indian Transformation Unit (MITRA) of which 80% will be programme-based
3. RM57 million provided to Orang Asli Development Department (JAKOA), in addition to RM83 million allocation for the community’s economic development, education and infrastructure.
4. RM575 million proposed for socio-economic assistance to senior citizens benefiting 137,000 seniors whose household income is below poverty level
5. RM25 million allocated to manage, administer and expand food bank programme
6. Allocation for subsidies and social assistance increased to RM24.2 billion, including welfare aid such as Bantuan Sara Hidup (BSH). BSH scheme expanded to cover 1.1 million single individuals aged above 40 earning less than RM2,000 per month.

Rural development

• RM10.9 billion allocated for rural development projects in 2020, from RM9.7 billion in 2019
• RM738 million provided for Risda and Felcra to implement income generating programme
• RM1 billion set aside for rural roads throughout Malaysia, primarily targeted at Sabah and Sarawak

Education and training

• Allowance for KAFA teachers increased by RM100 a month, to benefit 33,200 existing teachers
• RM735 million proposed for school maintenance and upgrading works
• Government allocates RM210m to expedite digital infrastructure establishment in public buildings like schools
• Education Ministry to receive largest allocation of  of RM64.1 billion in 2020 from RM60.2 billion in 2019
• Allocation for TVET programmes raised from RM5.7 billion in 2019 to RM5.9 billion in 2020
• RM1.3 billion proposed for education institutions under MARA, a further RM2 billion for student loans benefitting 50,000 students

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