Anwar's Triple Challenge: US Tariffs, GST Revival, and Eroding Political Capital

In the bustling kopitiams of Kuala Lumpur, patrons are swapping tales of two economic tremors—new U.S. tariffs and the government’s plan to reintroduce the Goods and Services Tax (GST) in 2025—while Prime Minister Anwar Ibrahim’s approval ratings slide. This trifecta of challenges is testing Malaysia’s economic resilience and Anwar’s leadership like never before.

Tariff Tremors Meet Tax Overhaul

The U.S. decision to impose fresh tariffs on Malaysian exports has forced Anwar’s administration into damage-control mode. While the PM dismissed the tariffs as “flawed,” officials privately concede that the measures could shave 0.3-0.5% off GDP growth in 2025, according to The Edge Malaysia. Compounding this pressure is Putrajaya’s confirmation in its 2025 budget blueprint that GST—abolished in 2018 amid public backlash—will return at a “moderate” rate, aiming to diversify revenue streams strained by subsidy reforms.

Anwar has framed both challenges as necessary evils: “We must fortify our fiscal position while defending our export sectors,” he declared last week. But critics argue the timing risks overburdening businesses and consumers already grappling with inflation.

The GST Gambit

Quoting The Edge Malaysia’s fiscal policy analysis, the GST revival—targeting RM25 billion annually—is designed to offset declining oil revenues and tariff-related export losses. Yet the move is politically fraught. Public sentiment remains scarred by memories of the 6% GST rate under Najib Razak’s administration, which critics blame for cost-of-living spikes.

“The GST could stabilize long-term revenues, but implementing it alongside U.S. trade barriers is a high-wire act,” said Razlan Ahmad, an economist at MIDF Research, to The Edge. “Anwar must convince Malaysians this isn’t austerity by another name.”

Diplomatic Tightrope

Anwar’s “whole-of-nation” response now spans both trade and tax policy. On the international front, he’s walking a diplomatic tightrope, cautioning that U.S. tariffs could push Malaysia closer to China—a key investor in sectors like semiconductors and renewable energy. Domestically, his government is drafting sector-specific relief packages for affected industries, including rubber products and electronics, while preparing a GST public awareness campaign.

Political Peril

The PM’s reformist credentials are fraying as economic anxieties mount. A recent Merdeka Center poll shows his approval rating dropping to 48%, down 12 points since late 2023. Middle-income voters, in particular, cite frustration over stagnant wages and the GST’s return.

“Anwar’s dilemma is structural: He needs GST to fund social programs and cushion tariff impacts, but it’s deeply unpopular,” said political analyst Tricia Yeoh to The Edge. “This could fracture his reform coalition.”

Road Ahead

The government’s next moves will be critical. Economists expect targeted GST exemptions for essentials like food and healthcare to soften the blow. Meanwhile, Trade Minister Tengku Zafrul Aziz is reportedly lobbying U.S. counterparts for tariff exemptions on strategic exports like medical gloves.

For now, Anwar’s team is banking on a narrative of fiscal responsibility. As one ministry insider told The Edge: “This isn’t just about surviving 2025—it’s about proving Malaysia can adapt to a fractured global order.”