Malaysia Seeks Brazil and India Chip Partnerships as US Trade Risks Grow

Kuala Lumpur seeks new buyers for its chip industry

Malaysia is pursuing a semiconductor cooperation agreement with Brazil and talks with India as tariffs and restrictions on advanced technology make trade with the United States less predictable. As of October 15, 2025, the effort forms part of a broader government drive to find more markets for Malaysian chips, servers and electronics while keeping access to the American technology its factories use.

Deputy Investment, Trade and Industry Minister Liew Chin Tong delivered the clearest warning during a parliamentary session. He said Malaysian exporters needed to prepare for the possibility that their longstanding dependence on American buyers could end.

We have to accept the fact that our dependence on the US as an export destination may one day end.

The immediate pressure comes from a sweeping American tariff regime, with published rates including 50 percent on Brazil and 25 percent on Malaysia, alongside a threatened 100 percent levy on semiconductors made outside the United States. Washington is also tightening controls on artificial intelligence processors to prevent sensitive chips from reaching restricted users.

For Malaysia, a major centre for chip assembly, packaging and testing, those changes reach into an industry that supports its electrical and electronics exports. Its factories serve supply chains for cars, industrial machinery, consumer devices and data centres. Reduced orders, additional checks or delays affecting American customers could therefore spread across several parts of its manufacturing economy.

The proposed partnerships are intended to provide both protection against disruptions and opportunities for growth. Officials want a broader base of customers for chips assembled and tested in Malaysia, alongside technology transfer, training and joint ventures. Outreach to African partners is also part of the search for new markets.

Tariffs and chip controls create different pressures

The United States has long been both a buyer of Malaysian goods and a source of valuable semiconductor equipment and chips used by operations in Malaysia. That relationship now presents two separate challenges: taxes that can make exports more expensive and technology rules that can restrict what companies receive or handle.

A tariff is a tax paid by an importer when goods enter a country. Businesses can pass that cost to customers, making products more expensive, or change suppliers and production locations. The published American rates of 50 percent for Brazil and 25 percent for Malaysia are part of a wider system of tariffs set for individual trading partners.

The threatened 100 percent tariff on foreign made semiconductors adds another layer of uncertainty. Some major chipmakers with substantial investments in the United States may avoid the harshest measures, while smaller suppliers face less certainty about how their products will be treated.

Export controls operate differently. They govern whether sensitive products and technology can be supplied to particular destinations or users. Draft American rules would require licences for shipments of advanced AI chips to countries including Malaysia and Thailand, increasing paperwork, checks on customers and the possibility of delays.

Regulators have also urged closer scrutiny of data centre rentals and access to cloud computing, where customers use computing capacity remotely. The concern is that restricted entities could obtain advanced processing power through those services. Buyers are already reconsidering where to purchase equipment, place servers and assemble systems.

Malaysia therefore needs to broaden demand while retaining access to American technology. Deeper commercial ties across Asia and the Global South are being pursued alongside stronger compliance and traceability for shipments involving American intellectual property or chips.

What the Brazil agreement could contain

Officials have described the planned Brazil arrangement as a memorandum of cooperation on semiconductor development. Its text is not public, and the detailed scope of that agreement, the contours of an India accord and the final American licensing thresholds and tariff exemptions remain unsettled.

Agreements of this kind often establish working groups between governments, training programmes, research exchanges and a route for companies to develop projects together. In semiconductors, possible areas include assembly and testing, packaging services performed for other businesses, equipment maintenance, materials supply and standards for checking reliability.

Malaysia could contribute experience in intermediate chip assembly and advanced packaging. Partners could bring access to customers, design skills and capital. Turning that combination into business would require companies to agree on actual orders, investment and the technical requirements their products must meet.

Brazil is Latin America's largest economy and has substantial demand for electronics, vehicles and industrial equipment. Those industries need dependable chip supplies. High American tariffs on Brazilian goods give Brasilia another reason to develop trade and joint projects with other emerging economies.

A cooperation pact could help accelerate equipment certification and encourage Brazilian companies to place orders with Malaysian suppliers or establish joint ventures in Penang. It could also create routes for Brazilian universities and technical institutes to train with Malaysian plants.

Power electronics and chips suitable for vehicles offer further possible areas of cooperation. Power electronics help manage electrical energy, while chips used in vehicles must satisfy demanding reliability requirements. Coordination on standards could support Brazil's energy transition and vehicle production.

India offers a link between design and production

India brings a different set of strengths to the proposed partnerships. It has a large pool of engineers who design integrated circuits and has launched ambitious programmes to build domestic chip fabrication and advanced assembly plants.

New investments in assembly and testing, together with planned fabrication plants, are extending India's role from designing chips into producing them. A fabrication plant, often called a fab, manufactures the circuits on semiconductor wafers before later stages turn them into finished components.

A Malaysia agreement could connect Indian design companies and tool vendors with Malaysian specialists in assembly and testing. The commercial aim would be to get products through production and qualification more quickly for customers around the world.

Practical cooperation could include engineers working in each other's facilities, shared laboratories for reliability testing and coordinated teaching programmes for chip packaging and testing. Such arrangements would connect training more closely to the work that plants need to perform.

Multinational companies could also gain another production option across two politically stable environments where English is widely used and major Asian shipping routes are nearby. Having operations in both countries would give companies additional capacity and alternatives when one location faces disruption.

The eventual India agreement will indicate whether cooperation stays focused on chips or extends into broader digital industries. For Malaysian factories, the strongest opportunities would come from matching their production experience with Indian design work and the needs of shared customers.

Why Malaysia's packaging expertise matters

Malaysia's importance comes from the way semiconductor production is divided among countries and companies. Designing a chip, manufacturing its circuits and preparing it for use in a finished product are separate activities that require different equipment and skills.

Chip design is dominated by companies in the United States, Europe, India and Israel. Manufacturing at the most advanced production processes is concentrated in Taiwan and South Korea, while a wider group of countries produces chips using more established processes.

Malaysia has spent decades building a position in assembly, packaging and testing. These services are often grouped under the term outsourced semiconductor assembly and test, or OSAT. They depend on precision machinery, trained technicians, reliable electricity and efficient transport.

Assembly turns unpackaged semiconductor wafers into finished chips. Packaging protects the chips, helps remove heat and provides the connections that allow them to work with other components. Testing checks whether they perform correctly and can meet reliability requirements.

Malaysian operations serve major international businesses supplying automotive, industrial and consumer markets. Their role connects the country's factories to products far beyond computers, from equipment used in manufacturing to the electronic systems inside vehicles.

Advanced packaging is becoming more valuable because AI and high performance computing increasingly use chiplet designs. These combine several smaller pieces of semiconductor material, known as dies, inside a single package. Making those pieces work together requires more complex connections and careful management of heat.

Malaysia could capture more valuable work by attracting advanced packaging production lines and reliability centres that require substantial investment. American controls on AI accelerators, the processors used for demanding AI tasks, also mean that factories handling sensitive American chips or tools need rigorous checks on their eventual users.

Companies are investing in better tracking, clearer supplier declarations and internal compliance teams. Those measures support continued access to equipment and customers while Malaysia tries to expand into more demanding stages of chip production.

BRICS and ASEAN widen the search for markets

Brazil and India fit a wider Malaysian effort to deepen commercial links with emerging economies. Both belong to BRICS, the grouping that includes Brazil, Russia, India, China and South Africa and accounts for roughly 40 percent of global output.

BRICS economies have been developing trade and finance channels intended to reduce their exposure to tariff shocks and sanctions. Malaysia is not a member, but it is strengthening connections with those economies and other developing partners to create more export options.

The commercial aim is a broader network of buyers and suppliers that can sustain demand when one major market becomes harder to serve. For chip producers, that means looking beyond a single export destination while building relationships that can support training, technology exchanges and investment.

Manufacturing economies across Southeast Asia are also adjusting to American tariffs and export controls. Governments are courting alternative markets and encouraging more trade within the region in components and finished goods.

Kuala Lumpur's outreach includes stronger ties with South Asian partners and a planned visit to African capitals to pursue electronics and technology cooperation. Those efforts sit alongside its search for semiconductor agreements with Brazil and India.

ASEAN suppliers could form part of that wider network, particularly for companies seeking additional sources of components. The objective is to spread commercial exposure across more markets while keeping the supply relationships needed to operate Malaysian factories.

Malaysia faces pressure from both Washington and Beijing

Malaysia's diversification strategy depends partly on confidence in how it supervises sensitive technology. If Washington views the country as a transit point for restricted AI chips, tighter American controls could make it harder for Malaysian operations to obtain advanced processors and tools.

Beijing presents a different concern. If Malaysia is viewed as aligning too closely with American enforcement, informal pressure could complicate investment decisions by Chinese companies. Policymakers are trying to manage both relationships through stronger compliance, greater transparency and supervision of chip movements and computing capacity hosted in Malaysia.

Trade volatility makes those decisions harder. Tariff schedules set for individual countries can change the cost of buying and selling goods as political negotiations develop. Companies may need to reconsider where they source components even after making production plans.

Bert Hofman of the National University of Singapore said the finalisation of the American tariff package at least gave economists and businesses a basis for assessing its effects after months of uncertainty.

This is supposed to be it. Now you can start to analyse the impact of the tariffs.

That greater clarity can help companies calculate costs and consider responses, even when tariff rates are high. For Malaysia, it also sharpens the need to turn diplomatic outreach into dependable business relationships.

Workers, utilities and laboratories will shape results

Malaysia's ability to attract more advanced chip work also depends on conditions inside the country. Sophisticated packaging lines and reliability laboratories need engineers, skilled technicians and steady supplies of electricity and water.

The government and industry will need to expand training programmes so that new facilities can find suitable workers. Partnerships involving engineers, technical institutes and shared laboratories could help connect those skills programmes to the production work that companies want to bring to Malaysia.

Permits for power and water upgrades will need to move faster, while logistics hubs must keep pace with industrial growth. Reliable utilities and transport are basic requirements for plants that use expensive equipment and serve customers with strict production schedules.

Success would support more valuable jobs and strengthen Malaysia's position as a location for complex packaging and testing. Penang, already a focus for possible joint ventures, will be one place to watch for commitments to new production and design activity.

Government agreements can open discussions and establish channels for cooperation. Their commercial results will depend on companies committing capital, placing orders and developing products that factories can reliably deliver.

What companies can do as trade routes change

Chipmakers, electronics businesses and data centre operators face new commercial possibilities alongside more demanding checks. Planning early can help them secure supply, reduce exposure to tariffs and maintain access to American technology.

Companies considering the Malaysia, Brazil and India partnerships have several practical areas to examine:

• Map essential components and seek additional suppliers in Brazil, India and ASEAN where suitable options exist.
• Strengthen checks on final users, inventory records and audit trails for equipment and chips involving American technology.
• Explore joint ventures connecting Indian design skills with Malaysian assembly and testing to shorten product qualification.
• Build local teams for standards, reliability testing and packaging development to pursue more valuable work.
• Separate product lines by destination, including goods intended for the United States or other controlled markets and those serving BRICS and Global South customers.
• Contact Malaysian and Indian agencies early about permits, training programmes and incentives for importing equipment and establishing laboratories.

For businesses, the value of a new trade relationship will depend on practical details: whether a supplier can meet technical standards, whether the shipment needs a licence and whether the final product can reach its intended customer at an acceptable cost.

Decisions to watch during the rest of 2025

The Brazil memorandum's text and scope will show how quickly cooperation could progress from government discussions to factory projects. The shape of an India accord will help companies judge whether it offers specific programmes in semiconductors or a wider digital partnership.

American rules for AI processors are another central issue. Final licensing thresholds and any routes available to validated end users will affect how easily Malaysian factories can continue handling sensitive components. A validated end user pathway would centre on whether an approved recipient can receive controlled technology under the applicable rules.

Any American decision to impose or exempt the threatened 100 percent tariff on foreign made chips would affect pricing and sourcing. Companies will also be watching how those decisions interact with existing tariffs and their own investments in the United States.

Investment commitments will provide a concrete measure of business confidence. New packaging and design projects in Penang, or decisions to place them in competing locations, will show where multinational companies see the most workable combination of cost, market access and compliance requirements.

Malaysia's immediate task is to keep its established semiconductor operations connected to essential technology while creating more places to sell their output. Brazil and India offer different routes towards that goal, one through industrial demand and market access, the other through design talent and expanding production.

Key Points

• Malaysia is pursuing a semiconductor cooperation pact with Brazil and talks with India to broaden its export markets.
• Deputy Minister Liew Chin Tong warned Parliament that dependence on the United States as an export destination could end.
• Published American tariff rates include 50 percent for Brazil and 25 percent for Malaysia, alongside a threatened 100 percent levy on foreign made semiconductors.
• Draft American rules would require licences for advanced AI chip shipments to countries including Malaysia and Thailand.
• Malaysia wants to connect its assembly, packaging and testing expertise with Brazilian demand and Indian design and production capabilities.
• Outreach to BRICS economies, South Asian partners and African markets forms part of the wider diversification effort.
• Skilled workers, dependable utilities, investment and strong checks on sensitive technology will shape the results.