Supply Chain Report – 10/10/2025
Malaysia has issued a strong warning that any move by the United States to remove tariff exemptions on its semiconductor exports could significantly weaken the country’s trade competitiveness, disrupt global supply networks, and potentially create ripple effects across the broader technology industry. The warning was detailed in an economic outlook report released alongside Malaysia’s 2026 national budget, underscoring the importance of the semiconductor sector to both national growth and global supply chain stability.
The report follows the U.S. administration’s August decision to impose a 19% tariff on Malaysian exports, covering a wide range of goods. However, certain critical sectors — including semiconductors — were temporarily exempted pending the results of a U.S. national security review. These exemptions currently provide some relief to Malaysia’s export-driven economy, but the government cautioned that removing them could have significant economic repercussions.
President Donald Trump also proposed a 100% tariff on imported semiconductors, a move that would represent one of the most aggressive trade policy shifts in recent years. The proposal specifies that the new duties would not apply to companies with an established manufacturing presence in the United States or those planning to build facilities there. This exemption has encouraged several global chipmakers to explore or expand operations in the U.S., though many industry players remain concerned about the broader implications for cost, competitiveness, and supply chain flexibility.
In its report, the Malaysian government stated that any removal of the semiconductor exemptions “could result in repercussions, reduce competitiveness, and strain sectors that are closely integrated with the U.S. supply chains.” The statement highlights the country’s critical role as a global production hub for semiconductor assembly, testing, and packaging — essential stages in the electronics manufacturing process that support American, European, and Asian technology companies alike.
Malaysia currently ranks as the sixth-largest exporter of semiconductors worldwide, with the industry accounting for nearly one-fourth of its total exports. The sector employs hundreds of thousands of workers and serves as a foundation of the country’s industrial ecosystem. However, rising tariffs and growing protectionism could reduce demand for Malaysian-made components, slow foreign investment, and encourage multinational firms to shift production elsewhere.
According to the government’s analysis, the newly imposed U.S. tariffs could lower Malaysia’s gross domestic product (GDP) growth by 0.76 percentage points, representing a tangible hit to the economy. The report further anticipates declines in both imports and exports in 2026, reflecting a broader global slowdown in trade linked to tariff uncertainties, shifting supply chains, and tightening market conditions.
The government already revised its 2025 GDP growth forecast in July to a range of 4% to 4.8%, down from its earlier projection of 4.5% to 5.5%, citing tariff impacts and weaker global demand. For 2026, Malaysia expects growth to remain moderate at 4% to 4.5%, driven by stable domestic consumption and targeted public investments aimed at offsetting external headwinds.
Economists and trade experts have noted that Malaysia’s semiconductor ecosystem is deeply interwoven with U.S. technology supply chains, providing critical components used in consumer electronics, automotive systems, medical devices, and data infrastructure. Disruptions in this trade relationship, they warn, could have broader implications for the global technology industry, potentially increasing production costs and slowing innovation.
Beyond its economic projections, Malaysia’s report called for continued dialogue and cooperation with key trade partners, particularly the United States, to ensure that supply chain resilience and fair competition remain priorities amid evolving trade dynamics. The government also reiterated its commitment to strengthening domestic manufacturing capabilities and attracting new investments in advanced semiconductor technologies to maintain its role as a key global player.
Trade analysts have pointed out that Malaysia’s warning reflects a growing concern among export-oriented economies in Asia, which face uncertainty from shifting U.S. tariff policies. With chip demand expected to rise due to the global expansion of artificial intelligence, electric vehicles, and renewable energy technologies, maintaining open and predictable trade flows will be essential for ensuring long-term industry stability.
As policymakers on both sides evaluate their next steps, industry leaders are watching closely. Many companies are seeking clarity on tariff timelines and potential exemptions, knowing that any major shift in U.S. trade policy could have long-lasting effects on production costs, investment decisions, and global supply chain strategies.
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