[KUALA LUMPUR] Malaysia’s high-flying electronics export sector may be on shaky ground as the threat of renewed US tariffs casts a shadow over RM64 billion (S$19 billion) worth of non-semiconductor shipments and unsettles global players invested in the country’s vital role in the chip supply chain.
The warning signs come just months after Malaysia hit a record RM601.2 billion in electrical and electronics (E&E) exports in 2024, underscoring the stakes for a sector that supplies everything from chipsets to microcontrollers to US buyers.
While the immediate focus remains on the potential levies on the non-semiconductor E&E exports, Malaysia’s significant clout in the global semiconductor assembly, testing and packaging (ATP) market where it commands a 13 per cent share may offer limited buffer against the uncertainties.
The threat alone has triggered caution across the sector.
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“Many companies are evaluating their relative competitiveness… We will have a better understanding after the dust settles and Trump finalises negotiations with other countries,” he told The Business Times.
A recent MSIA survey revealed that 74 per cent fear potential tariffs could deter foreign investment, and 65 per cent of members expect negative business impacts over the next 12 months.
A foreboding
The semiconductor sector, exempted for now, remains vulnerable. Dr Ong Kian Ming, pro-vice chancellor at Taylor’s University, said a reciprocal US tariff exceeding 20 per cent on Malaysian semiconductor exports will have a seismic impact on the industry.
“Although other countries in the region with higher tariff rates may be hit harder such as Vietnam, there will be a global negative impact on the entire semiconductor supply chain,” he added.
Going by Washington’s ever-changing tariff moves, market observers said there is not much that industry players can do, except wait for some clarity from the Malaysian government’s negotiation efforts.
On Apr 9, US President Donald Trump announced a 90-day tariff implementation suspension and a flat 10 per cent tariff on most countries. Earlier, the US imposed high tariffs on Asean countries, ranging from 10 to 49 per cent, with Malaysia facing a 24 per cent rate.
While chip exports remain exempt for now, the looming threat to broader E&E shipments has injected fresh uncertainty into one of Malaysia’s key economic pillars.
The US Customs and Border Protection issued a notice last Friday (Apr 11) stating that smartphones, laptops, memory chips and other consumer electronics would be excluded from global levies.
However, over the weekend, Trump reversed course, announcing that this exemption was temporary pending a new US tariff approach specifically targeting the semiconductor industry.
Wong said this uncertainty is weighing heavily on industry sentiment. “Companies are closely monitoring the situation and evaluating their competitiveness across different markets,” he told BT.
Concerns on China+1 strategy
Dr Ong noted that the tariff policy uncertainty has raised many questions with regards to the viability of the China+1 strategy moving forward – including in the E&E ecosystem.
“New E&E investments in Malaysia are likely to slow throughout 2025. Both domestic and foreign players will adopt a cautious approach as they assess the impact of recent tariffs and brace for future ones,” he added.
Malaysia has been a major beneficiary of multinational firms diversifying away from China. However, if tariffs are reintroduced on a country-specific basis, the relative competitiveness of Asean nations could shift, said market observers.
Tan Altundag, investment analyst for emerging equities at Pictet Asset Management, noted that while Malaysia may fare better than Vietnam or Thailand, it could lose ground to lower-tariff jurisdictions such as the Philippines.
In Trump’s earlier tariff rollout, Cambodia, Laos, Myanmar and Vietnam were slapped with crippling duties ranging from 44 to 49 per cent, while Brunei, Indonesia and Thailand faced levies of 24 to 36 per cent. The Philippines and Singapore, meanwhile, were hit with tariffs of 18 per cent and 10 per cent, respectively.
At the special Asean Economic Ministers’ meeting hosted by Malaysia on Apr 10, all member states agreed to a unified approach of not retaliating and instead pursuing separate negotiations with Washington.
Malaysia also sought to mitigate its risks by strengthening ties with the US, including exploring a technology safeguards agreement to enhance bilateral cooperation.
Tan Altundag said Malaysia stands to gain if the US narrows its tariff focus to China. But if higher tariffs apply broadly, the regional playing field could become more fragmented.
“Amid ongoing tariff concerns, while China+1 supply chain diversification will likely persist, a new reality is the US priority to reshore advanced technology, and more investments are expected to be directed to the US going forward.
“However, Malaysia’s E&E sector, largely focused on lower-end chips and labour-intensive backend processes, should face less political pressure as the US prioritises reshoring high-end production,” he said.
US tech onshoring unlikely to catch on
Jayden Tan, an economic and equity analyst at Apex Securities, said Malaysia remains a critical backend semiconductor hub, accounting for around 20 per cent of total US semiconductor imports in 2024.
“We believe that the high cost of backend processes relocation to the US likely exceeds the tariff impact, making large-scale near-term onshoring by US tech giants improbable,” he said in a report on Apr 3.
Having said so, uncertainties surrounding trade policies under the Trump administration could negatively affect investment decisions and potentially slow down capacity expansion plans by global tech companies in Malaysia.
“Although semiconductor exports should remain resilient over the near term, frictional costs and disruptions may increase,” he added.
Commenting on the baseline 10 per cent tariff applied globally, RHB Research analyst Lee Meng Horng said this will have minimal impact on Malaysia’s technology-related industries, as it creates a level-playing field among competing nations in the E&E sector.
Although he cautioned that near-term demand disruptions remain a risk as markets digest policy shifts, Malaysia’s cost-competitive, export-oriented model still positions it as a potential winner in any longer-term supply chain realignment.
“The key uncertainty lies in the extent of short-term demand disruptions before structural demand recovers,” Lee said.
