US 25% tariffs for Mr Cool Malaysia is no big deal
The US has announced a new round of tariffs, with Malaysia facing a 25% rate starting 1 August 2025.
Several other countries are affected more severely, including Thailand and Cambodia at 36%, Indonesia at 32%, and others in that range.
While the headline may sound concerning, for Malaysia, this development is more of a strategic challenge than a serious setback.
Malaysia still has room to breathe
Yes, the tariffs will have some impact, but they are unlikely to cause major disruption.
Malaysia exports products that US companies rely on, particularly in sectors like semiconductors, electronics, and intermediate components. These aren’t products the US can easily replace with local alternatives. Demand may adjust slightly, but it tends to hold firm in these segments.
More importantly, Malaysia remains one of the most competitively priced exporters in the region. Even with the 25% tariff, our goods will still be cheaper than similar products from Thailand, Indonesia, and others, because their tariff rates are higher. This gives Malaysian producers a pricing edge.
Malaysia’s strategic position in electronics and semiconductors.
Malaysia is deeply embedded in the global tech supply chain.
We handle about 13% of the world’s chip packaging and testing. About 20% of US semiconductor imports in this category come from Malaysia. We are also a major supplier of printed circuit boards and intermediate electronic components, especially in areas where the US lacks domestic production capacity.
With rising global demand for AI infrastructure, 5G hardware, and electric vehicles, Malaysia’s role in advanced chip packaging is becoming even more important. These are not functions that can easily be moved elsewhere without serious disruption. As a result, US firms are likely to continue sourcing from Malaysia, regardless of the new tariff level.
The China factor and Malaysia’s opportunity
Chinese goods now face a combined 55% tariff burden in the US. That is more than double what Malaysia is subject to. This creates strong incentives for Chinese manufacturers to relocate parts of their production.
For these companies, Malaysia is an attractive option. We are geographically close, politically stable, and already equipped with the right infrastructure. Most importantly, we are comparatively cheaper than other Southeast Asian countries, not just in terms of production efficiency but now also in tariff impact. This could result in significant inflows of foreign direct investment from China into Malaysia’s manufacturing sector.
That investment would likely generate new jobs, increase technology transfer, and strengthen the local supply chain, particularly in high-value segments like chip packaging and assembly.
Malaysia stands out as others come under pressure
While Malaysia’s tariff rate sits at 25%, our neighbours are not as fortunate. Thailand and Cambodia now face 36%, and Indonesia is at 32%. Even Vietnam, often viewed as a top manufacturing alternative in the region, is under pressure. Some of its exports, particularly those flagged for transshipment, could face tariffs of up to 40%.
In this environment, Malaysia stands out. Our combination of lower tariffs and relatively lower costs gives us a unique competitive position. We are now seen as a stable, neutral, and cost-efficient production base, especially for Chinese firms looking to maintain access to the US market without absorbing the full tariff burden.
The takeaway
The 25% US tariff is not ideal, but it is manageable. Malaysia remains competitive, not only because of our strategic role in semiconductors and electronics, but because we are still cheaper than most of our regional peers, even after the tariff.
US firms still need what we export. Chinese producers are now actively looking to shift operations, and Malaysia is well-positioned to be their destination of choice.
This moment offers a real opportunity. If Malaysia acts quickly with the right policies and incentives, we can turn this into long-term economic benefit. The fundamentals are in our favour. Now it’s about making the most of it.
Adapted from the article written by Fawwaz Aminuddin, an investment expert. He wrote to FMT, published by the portal via its Letter To Editor column today, Wednesday 9 July 2025.
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| Adapted by Fauzi Kadir Chief Editor
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