Thailand and Malaysia: Growth under pressure
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Hi there, I'm Ed Butler. Welcome to Business Daily from the BBC World Service. Today in the second of our programmes from Southeast Asia, I'm looking at what governments here might be doing in response to the threat of US tariffs. I'm confident for my industry, but what I'm not confident is Trump, what he's going to do. Everybody is not confident what he's going to do when he wakes up in the morning.

Also in the programme, the challenges that workers are facing to make ends meet. Feeling the squeeze in Southeast Asia. That's Business Daily from the BBC.

So this is where it all happens. If you ever wondered where rubber comes from, well...

it's here or a lot of it I've almost just trodden a snake there which is just crawling through the undergrowth here I'm standing in a rubber plantation in Domburi which is in eastern Thailand Thailand being the number one exporter globally a third of the world's rubber comes from Thailand and many of its rather more picturesque snakes as well by the looks of the reptile that is

slithering across the leaves in front of me here. There are little cups attached to each tree and a tap, a metal tap, which sticks off out of the grazed bark of the tree, which is dispensing a small amount of white liquid. That is the sap of the tree. That becomes natural rubber. It gets exported around the world and it is a multi-billion dollar industry. Much of it, of course, going to the US, but...

For how much longer? I'm here with Duang Chai. She's 73 years old. She's a farmer here in this area. Duang Chai, how long have you had a rubber plantation here? It's about 28 years for this plantation. Is it a good business? Yes.

It's good. Before rubber plantation, she grow like sugarcane and cassava before. And she think this business is good because it's only one-time investment. She grow only once long time ago. And take care of the trees about seven years, then you can start harvesting. Only one-time investment.

How worried are you by what you're hearing from the United States that they may be putting up taxes and making it very hard to export to the U.S.? Since Trump policed about the trade, the price of rubber is going down very much. So that's what she's concerned. Even the price of rubber last year is better than this year.

So just the threat of these tariffs has caused the price to come right down and affects your bottom line. It's not good, the price going down. She doesn't like it, she doesn't like it at all. But there's no other alternative option for farmers, so we just have to keep doing it.

This is the challenge facing all industry here in Thailand and across Southeast Asia. As we were hearing in yesterday's show, it is a regional economy built in large part on its exports. Commodities like rubber, sugar, rice and manufactured goods with the US its number one market. We're now stepping into a pretty major facility in another part of the area.

You can hear the water pouring down. It's the middle of a tropical storm right now. Just trodden a huge puddle. We walk in and you can hear the machinery. This is where they flatten out the raw rubber, turn it into sheets on an industrial scale.

Well, the foreman here is telling me that this is where the raw plantation rubber is refined and treated before it gets sold on to be made into car tyres. And under his watchful eye, my fixer Mao and I approach one of the workers in the factory as he toils away sifting through the process batches. Hi, how are you doing?

What's your name, sir? His name is Kla. How long have you been working here? Four years. I like this job a lot. It's a very good job.

And he said all of his friends try to apply for this job in this factory. Everybody wants to work in this factory. Why is it the best job? How much money do you get paid? It's fun and not stressful.

Or at least it is if you're a foreign employee. A Thai worker would hope for a much better rate of pay. Kla is originally from Myanmar, though, as were the bulk of the employees that I saw here...

and they do tend to get paid a lot less. But let's be clear, life can feel pretty hard for middle-class citizens as well in this region. That's what I heard, at least in neighbouring Malaysia, when I visited its capital city, Kuala Lumpur. Do you want to try something? It's like a very local drink. Yeah, let's try something. OK.

I've come to Kuala Lumpur's Chinatown with Joanne Kwan. She's an executive who works in corporate social media. So tell me what this drink is. It's a type of fruit going to reduce the heat in your body. It's a special heat-reducing fruit. Yes, it's like a herbal tea. All right.

Joanne's from the country's large Chinese-speaking minority. She comes here often, not just for drinks, but for the good food and the best-cut flowers in the city, she says. Armed with our heat-reducing drinks, she then tells me more about life in the capital.

I think everyone is very busy with their own job and I don't know about the rest but I'm just really trying to make ends meet every month just to pay my rental, just to pay my insurance. I don't see myself traveling to overseas this year unless I get a big bonus from the company, right? But of course I still have to save for rainy days.

So around us right now, there's awful Chinese people because it's Chinatown. But do you think a lot of these people are tourists or are they... Mainly are tourists from all around the world. But if they start to speak, then I can probably can tell you, oh, they're from Taiwan. Oh, these are from Singapore. Oh, these are from China. You could hear the Shanghai accent. You could hear the Taipei accent. Yeah, it's different.

And so over here on the right we've got the Dorian fruit I see. And also there is a temple.

that I come here for prayers, blessing for my friends. Maybe I could ask them to do a blessing for you as well. Could you? Yes, why not? It's a real trading culture around here, isn't it? It's a country of traders. Yeah, you know, I'm not surprised that most of the working class, they will have a second job, maybe like a little part-time over the weekend. Really? Because why? I think so. Because prices are going up? Oh, it's really expensive. Yeah.

It's a little bit struggle for me because I work in a system whereas they pay me a basic salary. Work hard to get the commission.

It makes you have that feeling like, OK, how much do I want to make this month in order for me to live a quality life for next month? It's tough. Do you find that exhausting? It is very exhausting because we work long hours. I struggle. I struggle with it. And you see the rest of your, some of your colleagues that probably hit the KPI and get the bonus and you don't. You think that's the norm here?

It is the norm. It is the norm. I've been there, I've seen it. And with that, her phone went. A work call, maybe. This hectic lifestyle has seen impressive economic growth in Malaysia of late, around 5% a year. But business people like Dr Suley Abdul-Malik, head of the Small Business Owners Association, says that it's been driven in part by considerable inward investment from Chinese firms...

And that has proved a mixed blessing in Malaysia. Many businesses are starting to thrive and the economy is picking up. But saying that, there are also a lot of China companies opening up in Malaysia because the government is welcoming them to come and invest. And the local companies cannot compete with

Thank you very much.

especially the construction industry, the interior design industry. They are competing and the Malaysian companies are losing out. We plan to have a dialogue with the government and to see how we can mitigate in Malaysia. Are they given preferential terms of tax and so on when they come in? I mean, is it a good deal for a Chinese company to come into Malaysia?

The government has given them a lot of incentives to come in. So we are going to look at some kind of protection which should be given to the local companies because sometimes they come in at a very low price to get the project. But as they go along, then the price starts going up. Right. So they're using their economic power, their business muscle to flatten the opposition and then they can charge what they like. Right.

You cannot give a monopoly to one company. That will always cause trouble for the consumer. Dr Suley Abdul Malik of the Small Business Owners Association, here on Business Daily from the BBC World Service.

Well, as mentioned, it feels like everyone is trading here in Southeast Asia, selling their wares in multiple languages. Malaysia has always been a trading crossroads in this region. But are the stresses of that central position beginning to tell as the economic rivalry between its trading partners, the US and China,

comes to the fore. Injilal Hanan Hafiz is an analyst with the strategic advisory firm Bauer Group Asia, and he says that Malaysia feels like it's trapped in the middle right now.

Our strongest export has always been in E&E, electrical and electronics. Like you see semiconductor growth, chips prices skyrocketed. And then like Taiwan and Malaysia, we've benefited from that. So basically places like Taiwan, they fabricate the chips and you kind of package them. You put the plastic casing on them.

At this point, yes, it's still relatively low in terms of the value chain. But also like the basic IC chips that you see in remote controls for TVs, a lot of those things are manufactured here. So chips, chips, chips. It's all chips, chips, chips. Yeah.

But the headwinds for Malaysia is basically trying to hedge against the fallout of this trade war. What we're more concerned about is if the trade war between the United States and China goes out of control or if it impacts the supply chain for electronics or digital economy, something that Malaysia quite relies on. Us having to manage our relationship with the United States and while at the same time also manage our relationship with China,

I think the headwind is about making the right choice, taking the right bet, gambling. Gambling on geopolitical relationships. What about the companies themselves, though? Because it's been claimed, certainly by some American analysts, that Chinese companies are coming into this region...

dressing themselves up as Malaysian or Thai companies and sort of selling on into the U.S. market, trying to get around the restrictions on Chinese firms. Right. It's something we call transshipping, right? So because they come here, maybe they introduce some level of processing to change the name from made in China to made in Malaysia, right?

It's long been the belief of the Americans, but I think the relationship actually goes both ways. There are some American firms that try to do the same thing as well here. You reprocess, you repackage, maybe you finalize the manufacturing process in Malaysia to circumvent some restrictions on American goods in China. So I feel like the only way we could potentially have an impact in global economics is by allowing ourselves to be used in that manner.

But it's controversial. I mean, we've seen, for example, in the last few months, the arguments about these high-end AI chips produced by NVIDIA, which are allegedly coming through the Malaysian market to go to China. Now, there's a ban between the US and selling those types of hardware into the Chinese market. But you are accused, your country is accused of doing that. The government is pledging to crack down on this?

I wouldn't say it's a crackdown, right? We need to negotiate our position. The demands right now from the United States are, if it's too strict, if they're trying to impose United States-level sanctions on China...

We won't be able to accommodate that because we're friends with China as well. So that's the issue. Tricky. So, I mean, the Vietnamese call it bamboo diplomacy, don't they? Where they're friends with, try to be friends with kind of everybody. Similar for Malaysia. Yeah, correct. I think it's the Southeast Asian way, I guess.

Ijlal Hanan Hafiz. Well, that friendly Southeast Asian welcome wasn't offered to me by the government here or in Thailand either when I asked for an interview about their trade negotiations. It all feels very tense right now. Malaysia is right in the middle of this semiconductor standoff between the US and China. And at the moment, US tariffs are held at just 10%. In just a couple of weeks from now, that could rise to 24%.

In Thailand and elsewhere, it could go even higher. And some business leaders are reacting with alarm at the prospect. Un King Hum heads the Rubber Glove Makers Association. Rubber in Malaysia, as in Thailand, is a multi-billion dollar business. He says that in plain terms, the risk of a trade war is just too much to contemplate.

It's very negative. World trade is going to be slump. There will be unemployment. You know, when the world trade shrinks, it's not going to be helpful for anyone. Yet there have been headlines recently, haven't there, that there could be a kind of hidden benefit for at least the rubber glove industry in Malaysia because China can no longer trade with America. So you grab the Chinese market going into the U.S.?

Yeah, I mean, that's true. But, I mean, it's artificial. You know, this is manipulated. Then the Chinese manufacturer will go to the other part of the world. Yeah? I mean, to all manufacturers, fair competition. Is that the way forward? If we assume that we're going to hit this 10% figure, right, which a lot of people are hoping for, it's like the best that can be hoped for, a 10% tariff rate. Who knows? I know you're looking at me uncertainly here. But it's... Even if you reach that figure...

What would that do to you? I mean, like I said earlier, on any tariff, even if it's 10%, the importer has to pay for it. And everybody would be very worried about maybe the policy will change. What happens if they change to zero, back to normal, 2.7? I mean, the uncertainty is causing problems to the world. The US is the largest market, and the US is the richest country in the world. I don't know why they are doing this,

They created the system and they want to destroy the system. I do not understand. Are you confident that we are going to... Well, you're not confident, clearly. I can tell by your expression. But your feeling is that you're certainly confident that your government is going to not concede too much in the pursuit of a deal with Washington.

I mean, I'm not the government. Obviously, the Malaysian government is doing their best to negotiate a deal. I'm confident they will get a good deal. And I'm confident for my industry going forward. But what I'm not confident is Trump, what he's going to do. That I'm not confident. Everybody is not confident what he's going to do when he wakes up in the morning. Because he'll change his mind, you mean? Yes. He will change his mind. That's the uncertainty. We don't know what's going on. Yeah.

The US would say what we want to do is bring industry back to the United States. Could they not be making their own rubber gloves with Malaysian rubber? Of course they could. They could well do their own. There are glove manufacturers in the US, but what's the cost? That's the main issue here.

Malaysian business executive Oom Kim Hung ending this edition of Business Daily. Tomorrow we're going to be staying in Thailand where Gideon Long is going to be exploring the growing illegal trade in electronic waste. Join us for that.