The recent imposition of a 24% reciprocal tariff by the U.S. on imports from Malaysia has raised significant concerns for the country’s critical semiconductor sector, despite its partial exemption. While semiconductors are temporarily shielded from the tariffs, broader risks to supply chains, indirect exposure, and future trade uncertainties loom over the industry.

Current Exposure and Immediate Impact

Malaysia’s electrical and electronics (E&E) sector, which accounts for 40% of the nation’s total exports and 60% of its shipments to the U.S., faces immediate disruption. According to Investment, Trade, and Industry Minister Tengku Datuk Seri Zafrul Abdul Aziz, half of Malaysia’s E&E exports to the U.S. consist of semiconductors, which are exempt from the new tariffs. The remaining 50%, however, includes non-semiconductor E&E products such as computers and industrial equipment, now subject to the 24% levy. This means 30% of Malaysia’s total exports to the U.S.—valued at RM198.65 billion (US$42.5 billion) in 2024—are directly affected, threatening competitiveness and profitability for manufacturers.

Indirect Risks to Semiconductors

While semiconductors themselves are exempt, industry leaders warn of indirect consequences. Datuk Seri Wong Siew Hai, president of the Malaysia Semiconductor Industry Association (MSIA), emphasized that chips embedded in tariff-hit finished goods, such as electronics or machinery, could still face hidden costs. “If a product containing Malaysian semiconductors is shipped to the U.S., the tariff applies to the entire equipment. So, you don’t truly escape,” Wong explained. This creates pricing pressures for downstream manufacturers and may disrupt demand for Malaysian components.

Future Uncertainty and Geopolitical Risks

The exemption for semiconductors is not guaranteed to last. The Trump administration’s unpredictable trade policies leave room for future targeting. Wong cautioned, “Semiconductors could still be separately hit in the next round of tariffs.” Such a move would devastate Malaysia’s economy, given its role as a global semiconductor hub. U.S. giants like Intel and Germany’s Infineon Technologies operate major facilities in Malaysia, employing thousands and contributing to over 7% of the nation’s GDP. A tariff on semiconductors would not only harm U.S. firms’ offshore operations but also ripple through Malaysia’s domestic supply chain, which supports these multinationals.

Supply Chain Vulnerabilities

Minister Zafrul highlighted that much of Malaysia’s E&E exports to the U.S. originate from American companies producing intermediate goods in Malaysia for final assembly stateside. While this underscores Malaysia’s integration into global tech supply chains, it also exposes local suppliers. “We must assess how tariffs impact Malaysian industries and SMEs linked to these U.S. firms,” Zafrul stressed. Higher costs for U.S. manufacturers in Malaysia could lead to reduced orders or relocation of production, jeopardizing Malaysia’s position as a preferred outsourcing destination.

Mitigation Efforts and Industry Response

Malaysia’s government has announced plans to negotiate with the U.S. to minimize tariff impacts. Meanwhile, the semiconductor industry adopts a “wait-and-see” approach amid policy unpredictability. Wong noted that while exemptions provide short-term relief, long-term strategies—such as diversifying markets and enhancing value-added production—are critical. Malaysia’s trade ministry is also likely to emphasize the mutual benefits of its semiconductor ecosystem to U.S. negotiators, given that American companies rely on Malaysian-made chips for their domestic manufacturing.

Conclusion

The U.S. tariffs present a dual challenge for Malaysia: immediate pain for non-semiconductor E&E exports and lingering threats to its crown jewel semiconductor sector. While the industry’s exemption offers temporary respite, indirect exposure and geopolitical risks demand proactive measures. Strengthening supply chain resilience, accelerating trade diversification, and lobbying for sector-specific exemptions will be vital to safeguarding Malaysia’s role in the global tech economy amid escalating trade tensions.

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