Malaysia’s Trade with US Rises Amid Tariff Concerns

Malaysia navigates a new tariff pact while trade climbs

Malaysia’s trade with the United States has climbed, even as a new tariff regime takes hold. From January to September 2025, total trade reached RM270.88 billion, up 15.4 percent from the same period a year earlier. The growth comes as Kuala Lumpur and Washington concluded a reciprocal trade agreement on October 26, 2025. The pact keeps a 19 percent tariff rate on most Malaysian goods entering the US, while setting zero tariff treatment for a selected list of products. Officials say careful diplomacy prevented harsher outcomes. They argue that mishandling talks or imposing retaliation would have put RM198.65 billion of export markets at risk across sectors that employ large numbers of Malaysians.

Investment, Trade and Industry Minister Tengku Zafrul Aziz said the government used a whole of government approach to navigate the tariff shift and keep ties with the US steady. In 2024, about 7,700 Malaysian firms sold to the US, supporting roughly 1.1 million jobs, with electrical and electronics at the core of the flow. Strong demand for components and industrial equipment and a shift of some orders from China added momentum. Temporary pauses during 2025 gave negotiators room to strike a deal and gave companies time to adjust their pricing and logistics.

A 90 day pause on reciprocal tariffs earlier in 2025 eased pressure while both sides negotiated. The final agreement combines a fixed tariff rate with zero tariff lines for selected products. It also sets rules on standards, digital trade, labor and security that will influence how firms source parts, certify goods and plan investments. For exporters, the message is to keep the US market in view and prepare for stricter origin checks and added compliance.

What the 19 percent reciprocal tariff means

Reciprocal tariff in this context is a baseline duty the US applies to a country’s goods, with carve outs listed in annexes. It is not the same as anti dumping or counter subsidy penalties, which are case specific and can stack on top of baseline duty. The Malaysia US rate is set at 19 percent. Certain products, once verified, qualify for a zero tariff. The agreement allows adjustments through joint review and recognizes both sides’ rights under World Trade Organization rules. The text also notes that it will take effect 60 days after domestic legal procedures are complete.

Semiconductors sit at the center of the risk map. For now, many chip exports from Malaysia are exempt while a US national security review runs its course. President Donald Trump has also floated a 100 percent levy on imported chips, with carve outs for firms that already make, or commit to make, chips in the US. Malaysia is the sixth largest exporter of semiconductors and a global leader in assembly and test. Any change to exemptions or new rate hikes would ripple across Penang and other hubs. The agreement tightens rules of origin and enforcement to deter transshipment, so producers will need clear proof of where every component comes from.

Inside the agreement: market access, rules and security

The agreement is wide ranging. It cements reciprocal tariff rates and commits Malaysia to avoid quantitative import limits on US goods except in narrow circumstances under GATT 1994. It requires transparent technical regulations and fair conformity assessment so that product testing and certification do not become hidden barriers. US agricultural goods receive non discriminatory access and sanitary and phytosanitary measures must be science based. Malaysia agrees to protect intellectual property, strengthen enforcement against counterfeiting and piracy, and align service sector access with what it already offers other partners outside ASEAN arrangements.

There are clear standards on labor and environment, including protection of worker rights and a ban on imports made with forced labor. On digital trade, Malaysia will support a moratorium on customs duties for electronic transmissions, refrain from a digital services tax, and allow data transfers with appropriate safeguards. Rules of origin are designed to ensure claimed benefits go to goods from the two countries. The security chapter covers cooperation on export controls, sanctions and investment screening. Malaysia also pledges transparency on subsidies, commercial conduct by state owned enterprises, and cooperation on rare earths and other critical minerals. Food labeling rules will protect only legitimate geographical indications and preserve use of common names for cheese and meat. Malaysia will refrain from export bans or quotas on critical minerals and rare earth inputs and will grant longer operating licenses to key projects that supply US buyers, including rare earth magnets.

Sector by sector: winners, strugglers and the wildcard

For exporters, the near term gains will show up in product lines that secure zero tariff status and in lower compliance costs. Analysts point to downstream palm based chemicals, natural rubber inputs, cocoa ingredients, generic and specialized pharmaceuticals and precision parts for aerospace as early candidates that could benefit. The deal also streamlines halal certification for US goods, recognizes US vehicle safety standards and Food and Drug Administration certificates, and reduces paperwork for steel and remanufactured goods. That should make many US inputs, from medical equipment to machine tools, more affordable for Malaysian factories and consumers.

Pressure points are just as clear. Semiconductors remain outside the zero tariff lists, pending security decisions. A crackdown on transshipment means Malaysian exporters can no longer rely on routing third country content through local plants to ease duty exposure. The solar industry offers a cautionary tale. After tariffs on solar equipment from Malaysia rose to very high levels earlier in the decade, many producers shut or scaled back. That experience underscores how quickly assembly heavy sectors can shift when duty costs overwhelm thin margins.

Risks for SMEs and workers

Minister Zafrul has warned that failing to negotiate, or responding with high retaliation, would have been costly. He cited RM198.65 billion of export markets that could have been put at risk across multiple industries. About 7,700 Malaysian companies shipped to the US in 2024, supporting roughly 1.1 million jobs. A jump from a 19 percent rate to a 25 percent rate, or a targeted 100 percent levy on chips, would squeeze competitiveness and reduce orders. Some firms would face pressure to cut costs, delay expansion plans or relocate, while investors could shift to jurisdictions that offer similar rates but clearer incentives.

The math is straightforward. A 19 percent duty raises the landed price at the US border. Buyers will ask suppliers to absorb some of that cost. In markets where prices are set by global benchmarks or tight competition, the exporter often takes the hit. Margins shrink, credit terms tighten and big projects get postponed. In electronics, companies may hesitate to invest in new packaging or testing lines unless they also secure incentives or a footprint in the US that grants them exemptions. That calculus is why policy clarity matters for firms planning investment cycles that run for years.

Politics at home: sovereignty and scrutiny

The new pact has become a lightning rod in Kuala Lumpur’s political debate. Opposition leaders, analysts and civil society groups say the agreement gives too much to Washington and risks pulling Malaysia into foreign sanctions aimed at third countries. They argue that commitments on digital rules, market access and critical minerals tilt the balance toward the US.

Officials counter that sovereignty remains protected and decisions will be made under Malaysian law. They point to a government microsite and a set of answers to public questions, and they stress that Malaysia can terminate the pact. A special parliamentary committee will study the agreement, giving lawmakers a chance to review clauses on subsidies, procurement oversight and the behavior of state owned enterprises.

Former prime minister Mahathir Mohamad framed the charge in stark terms. He said the government agreed to buy US aircraft, gas and machinery, accept US digital rules, give priority access to rare minerals, open markets on US terms and follow US conditions on partnerships. He summed it up this way:

It amounts to handing over the country’s independence.

Government leaders reject that view. They say Malaysia will continue to decide on sanctions and foreign policy based on domestic law and national interest, and that any cooperation on export controls or investment screening will be calibrated to protect Malaysian priorities.

Regional context: ASEAN tariff tiers and shifting supply chains

The regional picture helps explain both the urgency and the friction. Across Southeast Asia, most countries have a 19 to 20 percent rate for entry to the US market, while Singapore sits at 10 percent. Japan and South Korea are at 15 percent, and China faces a much steeper rate under a separate arrangement. Washington has paired these rates with bilateral deals or frameworks that promise tariff stability for countries that meet verification and governance standards.

At the ASEAN summit in Kuala Lumpur, the US announced agreements or frameworks with Malaysia, Thailand, Vietnam and Cambodia. Each confirms tariff rates and opens the door to zero tariff lists once verification rules are met. The packages also tackle non tariff barriers and lay out cooperation on supply chain resilience, export controls and investment security. Malaysia and Thailand added memorandums on rare earths and critical minerals. The message to manufacturers is to trace content carefully and avoid routing goods through third countries in search of relief that will not hold up under customs scrutiny.

What exporters can do now

Malaysian executives can take concrete steps now. Verify rules of origin for every product and secure supplier declarations. Build audit trails for bills of materials and certificates that will stand up to checks by customs. Review contracts for duty sharing and adjust price formulas to account for the 19 percent rate. Coordinate with forwarders and brokers, and confirm that product testing and conformity documents match the standards recognized under the new agreement.

Diversify production and customers where feasible. Explore whether a portion of production can move to the United States to qualify for possible chip carve outs. Invest in traceability systems, especially for inputs that originate in China. Run scenario models that include a case where semiconductor exemptions lapse. Use government programs under the National Trade Blueprint and the New Industrial Master Plan 2030 to upgrade capacity. The policy target is to lift total exports above RM2 trillion by 2030 with average annual growth of 5.8 percent, a goal that will require sustained gains in productivity and market access.

Outlook: entry into force, semiconductor answers and investment flows

The agreement will enter into force 60 days after both sides complete legal steps. Agencies in Malaysia will then begin implementing changes on standards, licensing, halal processes and digital policy. Exporters will watch for the first lists of zero tariff products and for guidance on documentation that customs agencies will require. Firms will also track how the rules on state owned enterprises and subsidies translate into local reporting duties.

The semiconductor question will dominate boardroom agendas. The US has signaled a tough stance on imported chips and seeks to tie relief to manufacturing activity inside its borders. That mix will influence where multinational firms place advanced assembly and packaging lines. Malaysia has pledged large investments in the US and will increase purchases of US goods in sectors such as aerospace, energy, telecommunications and data center equipment. If these deals convert into actual projects, they could support new orders and strengthen technology links.

The Bottom Line

• Malaysia’s trade with the US rose 15.4 percent in January to September 2025 to RM270.88 billion.
• Malaysia and the US signed a reciprocal trade agreement on October 26, 2025 that keeps a 19 percent tariff rate and creates zero tariff lines for selected products.
• Semiconductors are currently exempt pending a US national security review, while a 100 percent levy has been proposed for imported chips with carve outs for US based producers.
• Officials say failure to negotiate or using retaliation would have put RM198.65 billion in exports at risk across multiple sectors.
• The deal adds rules on market access, standards, labor, environment, digital trade, rules of origin and cooperation on export controls and investment screening.
• Critics warn of sovereignty risks and possible alignment with foreign sanctions. The government says Malaysian law governs and the pact can be terminated.
• Zero tariff lists favor downstream chemicals, rubber inputs, cocoa ingredients, pharmaceuticals and aerospace parts. Benefits will vary across industries and firm sizes.
• Companies should tighten origin controls, model duty scenarios and use national export programs to sustain growth through 2030.