Malaysia makes efforts to minimize US tariff’s impacts

Malaysia’s top export to the U.S. - electronics and electrical products - will face the biggest brunt of a 25% tariff hike that the U.S. has imposed on the country, said head of School of Business under the Monash University Malaysia Prof Nafis Alam.

The 25% tariff starting August 1 is higher than the 24% initially imposed on certain Malaysian exports to the U.S.

As a spill-over effect, companies offering packaging, precision equipment, and logistics may also experience a decline in export demand, Alam said.

Malaysian multinationals based in the U.S. (around 65% electronics) will face cost inflation; a majority of them are already warning that slim profit margins cannot take on an additional 25% U.S. tariff.

This will lead to rebalancing in supply chains. Regional competitors like Vietnam will become a more attractive production hub.

Another spillover effect may lead to a rebalancing of investment patterns. With lead firms (especially in electronics, machinery and auto parts) will reconsider Malaysia’s manufacturing capabilities, long-term capital investment potentially will flow to ASEAN rivals - Vietnam, Indonesia or Thailand.

Malaysia is trying a two-fold initiative to overcome the hike. On one side, Malaysia is engaging in high-level negotiations and using U.S. Secretary of State Marco Rubio’s visit to the ASEAN summit as a deal breaker to secure a 15-20 % deal.

On the other hand, Malaysia is also exploring accelerating trade agreements with the European Union, China or Comprehensive and Progressive Agreement for Trans-Pacific Partnership style frameworks to diversify its export base.