Malaysia’s Semiconductor Ambitions Face Challenges Amid U.S. Tariffs

As Malaysia aims to enhance its position in the global semiconductor supply chain, it faces significant hurdles due to U.S. tariffs imposed by the Trump administration, complicating its goal to transition into high-end chip production.

Malaysia's semiconductor industry stands at a crossroads, aspiring to evolve from merely assembling to designing and manufacturing cutting-edge chips. This ambition has been significantly shaped by various factors including, notably, U.S. trade policies initiated during President Trump’s administration.

Founded by American technology giants like Intel and AMD over fifty years ago, Malaysia’s Penang State has become a critical manufacturing hub for semiconductors. Providing thousands of jobs and generating billions in exports, Malaysia has relied heavily on its role in the global tech supply chain, particularly in exporting components for a wide array of products from laptops to medical devices.

Recently, however, Malaysia's prospects have been jeopardized by rising tensions in the U.S.-China relationship, along with opportunistic tariffs. Initially, Malaysia was viewed as a strategic alternative for companies seeking to avoid U.S. sanctions aimed at China, particularly concerning advanced A.I. chips. Prime Minister Anwar Ibrahim's ambitious plan to propel Malaysia's semiconductor capabilities into high-tech production mirrored initiatives seen in Taiwan. However, this vision is now threatened by uncertainty stemming from Trump’s fluctuating trade policy.

Just last month, a 24 percent tariff was levied on Malaysian exports to the United States, although it has since been suspended. While negotiations are ongoing, all Malaysian goods imports face a baseline tariff of 10 percent—a situation exacerbated by Trump's potential consideration of a blanket 25 percent levy on semiconductor imports, cited under national security concerns. Julia Goh, a senior economist at UOB in Singapore, notes that these developments significantly undermine Malaysia’s aspirations to expand its chip manufacturing capabilities.

In essence, while Malaysia aims for a high-tech future in semiconductor design, it must navigate the intricacies of international trade policies that threaten its advancements in this critical economic sector.