Positive side of tariffs / Malaysian Car Industry

Positive side of tariffs

High import tariffs have contributed significantly to developing Malaysia’s national car projects. By relying less on imported automobiles, Malaysian has to a certain degree reduced its balance of payment deficit. The impact of high tariffs on imported vehicles has had the following results:

- Protection of the domestic automotive industry in such a way that local producers on national cars earn higher profits due to their higher prices and increase in production;

- Reduced foreign exchange outlays- that is tariffs reduce demand of imports as the price differential make imported automobiles unaffordable for many people;

- Higher government revenue – unlike quotas, which benefit the importer or exporting country, revenues from tariffs are collected by the government of the importing country.

Malaysia’s protectionist policies have also accelerated the development of automotive components and parts manufacturing. The Vendor Development Program (VDP) for national cars has created new players as well as given component parts manufacturers the scale of production necessary to become viable. Some of these vendors have also ventured into original equipment manufacturing (OEM) activities for other automotive makers and started exporting their products. Another significant feature is the creation of second and third-tier subcontractors and suppliers.