Post by : Rameen Ariff

The Malaysian government has issued a strong warning that any decision by the United States to remove tariff exemptions on semiconductor exports could severely affect Malaysia’s global competitiveness and disrupt supply chain networks that connect both nations. The warning was detailed in an official economic outlook report released alongside Malaysia’s 2026 national budget.

The issue stems from U.S. President Donald Trump’s administration’s recent trade measures. In August, the U.S. imposed a 19% tariff on Malaysian exports, although semiconductors were temporarily exempted pending the results of a national security investigation. However, Trump has also proposed an even steeper 100% tariff on imported chips, while suggesting that the new levy would not apply to companies already operating in the United States or planning to establish manufacturing facilities there.

According to Malaysia’s government report, any removal of semiconductor exemptions “could result in repercussions, reduce competitiveness, and strain sectors that are closely integrated with U.S. supply chains.” As the sixth-largest exporter of semiconductors in the world, Malaysia’s economy relies heavily on the technology and electronics sector, which makes this exemption critical to its continued economic stability.

The government also highlighted that Malaysia is already feeling the impact of the U.S. tariffs, projecting a slowdown in its economic growth. The report estimates that the country’s Gross Domestic Product (GDP) could decline by as much as 0.76 percentage points due to the tariffs. It also expects both imports and exports to shrink next year, largely as a result of ongoing trade tensions.

In July, Malaysia revised its 2025 growth forecast downward to between 4% and 4.8%, compared to an earlier projection of 4.5% to 5.5%. Officials cited global trade uncertainties, ongoing tariff disputes, and geopolitical instability as the main reasons for the downgrade.

The semiconductor industry plays a crucial role in Malaysia’s manufacturing sector, employing hundreds of thousands of workers and accounting for nearly 40% of the nation’s exports. Any disruption to its trade with the U.S. — one of its key partners — could have wide-reaching economic consequences, not just for Malaysia but also for the global electronics market.

The government reaffirmed its commitment to maintaining open trade policies and urged the U.S. to consider the mutual economic benefits of continued cooperation in the semiconductor industry.

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