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[KUALA LUMPUR] With just weeks to go before a 25 per cent US tariff kicks in, Malaysia is intensifying efforts to negotiate a more favourable rate. Market observers widely anticipate a reduction, with some projecting a revised tariff as low as 15 per cent.

Many believe the situation remains fluid, with analysts at MIDF Research citing ongoing negotiations by the Ministry of Investment, Trade and Industry (MITI) as a positive signal.

“Based on Vietnam’s latest trade agreement with the US, we expect that it will be lower than the tariff set for Aug 1. We believe Malaysia could land around the 15 per cent level,” said MIDF in a report on Tuesday (Jul 8).

Currently, a 25 per cent levy on Malaysian exports to the US is scheduled to take effect next month, up from 24 per cent announced on “Liberation Day” (Apr 2). The higher rate applies broadly across categories, excluding existing sector-specific duties.

Adding to trade tensions, US President Donald Trump also warned of an additional 10 per cent tariff on countries aligning with what he described as the “anti-American policies” of the Brics bloc. The group’s leaders began their latest summit in Brazil on Sunday.

Malaysia is one of the partner countries of Brics, alongside Vietnam and Thailand, with Indonesia becoming a full member in January 2025.

Among Asean peers, Malaysia stands out as the only country facing a tariff hike. Cambodia, Laos, Vietnam and Myanmar have had their rates reduced, while Thailand and Indonesia remain unchanged.

Beyond the region, Japan also saw its rate nudged up by 1 per cent to 25 per cent.

Still room for negotiation

Analysts view the 25 per cent figure as a deliberate signal – leaving the door open for negotiations to reduce the final rate.

“The slightly higher tariff can be seen as an indication that should Malaysia not be able to come to an agreement, that tariff will be enacted,” said MIDF.

Even if the 25 per cent rate proceeds, MIDF said the impact on growth projections would be limited, as its models had already priced in the previous 24 per cent levy.

MIDF expects Malaysia’s gross domestic product growth to be around 4 per cent in 2025, and the FTSE Bursa Malaysia KLCI to end the year at 1,590 points.

On Tuesday, the benchmark index fell nearly 0.5 per cent to close at 1,530.14, as 550 losers outpaced 399 gainers.

Despite the government’s active engagement with US officials, many businesses are treading cautiously.

Wait and see

Callum Chen, vice-president of the Malaysian International Chamber of Commerce and Industry, said most companies are unlikely to make a major relocation to, or invest in new ventures in lower-tariff countries, or even the US, in the medium term, unless significant opportunities arise in local markets.

“This caution is primarily due to the inherent risks associated with cost management, human resources and compliance in such transitions,” said Chen, who is also CEO of LH Plus, a major plastic products manufacturer that exports around 60 per cent of its output to the US.

He expressed disappointment with the 25 per cent tariff announcement, having anticipated a more moderate outcome. Since the April tariff news, many of his US customers have delayed orders, awaiting clarity before the initial Jul 10 deadline.

“With increased uncertainties leading up to the Aug 1 implementation, customers are taking longer to respond, significantly impacting our business,” he told The Business Times.

The US is Malaysia’s second-largest trading partner and top export destination. Total trade between the two countries jumped nearly 30 per cent in 2024 to RM324.9 billion, with exports reaching RM198.7 billion and imports totalling RM126.3 billion.

Semiconductor players may consider relocation

Meanwhile, Wong Siew Hai, president of the Malaysia Semiconductor Industry Association, warned that if diplomatic engagements fail to yield positive results, the country’s RM120 billion (S$36 billion) worth of electrical and electronics exports would be severely affected.

“If this happens, companies will need to decide whether to stay put in Malaysia or consider moving to lower-tariff countries,” he told BT.

In a separate report, OCBC expects the downside risks to growth to trigger Bank Negara to ease monetary policy, forecasting a cumulative 50 basis point cut in the second half of 2025 to cushion the economy and pre-empt inflationary pressures.

Malaysia has kept the overnight policy rate unchanged at 3 per cent since its last hike of 25 basis points in May 2023.