On 11 May 2018, Tun Dr Mahathir led the opposition coalition Pakatan Harapan to topple Malaysia’s previous ruling party Barisan Nasional (BN). At the age of 93, Mahathir who was previously Malaysia’s former Prime Minister for 22 years, was once again re-elected to become the oldest PM in the world.

Upon taking office, Mahathir quickly created controversy when he proposed to cancel various megaprojects such as the Kuala Lumpur-Singapore (KL-SG) high speed rail and the East Coast Rail Link that connects Kuala Lumpur to the Eastern part of Peninsular Malaysia. Mahathir further proposed to forbid Country Garden – the developer of the multibillion “Forest City” project – from selling to foreign buyers. He also highlighted that Malaysia will not issue visas to foreigners who purchase properties. Reputed for his confrontational foreign policy towards Singapore, Mahathir made a contentious issue about reviewing the 1962 water agreement. As a result, political uncertainties weighed on both Singapore and Malaysia’s stock market.

However in July, the Malaysian stock market staged a rebound to lift sentiments. Our local stock market also rallied, albeit in a more muted fashion. Interestingly, the market seemed to have realised that Mahathir had only made such claims to the media and most of his proposals are yet to be made official through proper channels.

The only exception was the KL-SG HSR, which saw both governments agreeing to delay the construction till May 2020. Malaysia would bear the costs and pay Singapore $15 million for suspending the project, but the figure is dramatically lower compared to the full compensation of RM500 million which Mahathir first claimed to be. Effectively, Mahathir has helped the Malaysian government saved more than RM400 million.

As US-China trade tensions elevated in July, Singapore’s stock market was impacted and stock prices declined significantly. However, Malaysian equities held up well as speculators believed that Chinese goods could find its way to the US via Malaysia so as to circumvent the tariffs. This could be done by setting up factories in Malaysia.

Recently on 12 September 2018, Wall Street Journal reported an insider in the inner circle who disclosed that US Treasury Secretary Steve Mnuchin has already sent an invitation to China’s government, proposing new round of trade talks to resolve the ongoing bilateral trade disputes. US Dow Jones Industrial Average rose but reaction was rather muted as the US Treasury did not confirm the news.

On the following day of 13 September 2018, China’s Ministry of Commerce confirmed that it had received and welcomed the invitation. The Dow once again opened higher and rose to 26,192 points.

However, the WSJ also insinuated that the US is taking the initiative to restart trade talks and it showed a sense of vulnerability about Trump. Indeed, in the last negotiation, China sent only one deputy minister to the meeting, signaling that that it is not going to concede without a fight. As a result, Trump immediately responded on social media that WSJ made a mistake and that the US is not in an urgent need to reach a trade agreement with China.

Following which on 12 September 2018, Trump ordered to impose 10 percent tariffs on an additional US$200 billion worth of Chinese goods. Trump had initially threatened to slap 25 percent tariffs on US$500 billion of Chinese goods – China’s full export value to the US.

Previously, the US Department of Commerce ordered tariffs on US$34 billion worth of Chinese exports to US, specifically targeting high-tech products. Making the access to the huge US market harder for China tech companies, the move was widely viewed as an impediment to China’s “Made in China 2025” strategic plan to dominate leading industries of the future.

When China retaliated and matched the initial US$34 billion tariffs, Trump responded by levying the second tranche of tariffs on another US$16 billion worth of Chinese goods.

The focus of the first tranche of tariff on US$34 billion worth of Chinese goods was designed to focus on high-technology goods and industrial goods and was a gauge to test China’s response. Meanwhile, the second tranche of $16 billion levy comprises some direct consumer products and was the reason why the US Department of Commerce delayed the imposition as it would immediately impact US consumers.

When Trump first threatened to slap 10 percent tariffs on another US$200 billion worth of goods, the Renminbi “coincidentally” depreciated 10 percent against the US Dollar to match the levy. In response, Trump threatened to hike the levy to 25 percent, to deter the Chinese government from further manipulating the Chinese Renminbi as a countermeasure. But despite Trump’s intimidation, the official tariff rate was left at 10 percent.

Personally, I opine that Trump would still want to make a deal with China soon. After all, a tit-for-tat tariff tiff would leave no winners in this trade war. On the other hand, US consumers will also be passed on the higher costs for Chinese imports and cheaper substitutes would be hard to find in a short period of time. With the midterm elections around the corner in November, Trump may desperately need a deal with China to bolster his position among US voters.

From the outset, Trump’s original intention of threatening tariffs was to coerce the Chinese government into coming to the negotiating table and make concessions to all US demands. However, China had only proposed to import more agricultural and energy products from the US without making other concessions, leaving Trump with no choice but to keep raising the stakes to pressure China.

At play now, the Chinese government is bracing themselves for a dragged-out trade war with the US. In face of an unorthodox and erratic US President, China has instead chosen to brace itself for a dragged-out trade war. To cushion impacts on the economy, the Chinese central government would usher in an infrastructure stimulus to prop up employment. On the other hand, Trump is left to manage higher costs of imports being passed on to US consumers.

For the time being, US-China trade war tensions have waned as the recent 10 percent tariff on US$200 billion in Chinese goods are less than 25 percent than Trump initially threatened. Trump’s aggressive posturing can be interpreted as an attempt to show Americans that he would show no weakness. Given that China is rather resilient in face of a US confrontation, Trump is also merely trying to keep up the pressure on China during the negotiation process.