KUALA LUMPUR, April 17 (Bernama) -- Bursa Malaysia rebounded from early losses to close higher today, supported by the upbeat performance of regional peers amid improved investor sentiment. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) added 6.35 points, or 0.43 per cent, to 1,483.27 compared to Wednesday’s close of 1,476.92. The benchmark index opened 1.75 points lower at 1,475.17 and moved between 1,473.21 and 1,487.27 throughout the day. In the broader market, gainers outpaced decliners 455 to 354, while 467 counters were unchanged, 1,134 untraded, and 19 others suspended. Turnover slipped to 2.40 billion units valued at RM1.60 billion from 3.00 billion units valued at RM1.65 billion on Wednesday.
In the latest issue of Tong’s Portfolio, Tong Kooi Ong argues that while Trump’s tariff strategy may be grounded in economic theory, its execution risks backfiring on a global scale — creating not only global trade uncertainty, but potentially triggering retaliation, supply chain disruptions, and global welfare losses.
The Economic Theory Behind Trump's Move:
Based on optimal tariff theory, a country with market power can impose tariffs to shift trade terms in its favor, improving national welfare by:
Reducing import prices through global demand suppression
Increasing tariff revenue
Transferring income from foreign exporters
- The key formula:Optimal Tariff Rate = 1 / ε (ε = foreign export supply elasticity)Lower elasticity = higher potential optimal tariff
- Trump’s formula for reciprocal tariffs also mirrors this theory:Δt = (X-M) / M, where X = US exports, M = US imports.
Why the Execution is Flawed:
Trump imposed tariffs of up to 54% on China, far above the <20% level most economists view as tolerable before retaliation kicks in.
The actual impact:
Higher US consumer prices
Supply chain disruptions
Trade retaliation
Shrinking competitiveness for US firms
Historical reference: After imposing 25% steel and 10% aluminum tariffs in 2018, the US gained <9,000 jobs in steel but lost ~100,000 in downstream manufacturing. Net result: welfare loss.
The Real-World Trap:
"Trump’s formula is theoretically sound — but practical elasticity estimates are hard to pin down, and retaliation changes everything." – Tong Kooi Ong
Trump’s belief in “thinking big” may have overplayed his hand. The administration seeks US$1 trillion in tariff revenue, which requires ~30% average tariffs.
But pushing tariffs too high (e.g., China’s 125%) leaves no room for negotiation and may backfire entirely.
Likely Outcome:
Walk-back inevitable: Trump will likely scale back tariffs and declare a win.
However, 10% tariffs may stay — especially on smaller nations unable to retaliate.
Global Implications:
Decline in US global economic dominance
Slower US trade growth relative to global trade
Strengthened intra-Asia alliances
China’s surplus may flood smaller economies
Accelerated move away from US dollar dominance
Portfolio Insights:
Malaysian Portfolio: Down 1.5% (vs FBM KLCI -8.2%) due to defensive positioning (81% cash).
Absolute Returns Portfolio: Down 5%, raising cash to over 30%.
Top gainers: US Steel (+6.5%), CrowdStrike (+1.8%)
Top losers: Tencent (-12.2%), Goldman Sachs (-8.2%), Nucor (-6.1%)
Trump’s tariffs could have been a strategic tool, but “too big, too fast” has created instability. While a walk-back is likely, the damage to global sentiment and trade relationships will linger — and Trump may have just “bluffed” himself into a losing hand.
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