Malaysia’s Exporters Brace for US Tariff Hike

With just a month to go before the United States imposes a significant 24% tariff on all Malaysian goods, the nation’s export sector is grappling with mounting anxiety. The Federation of Malaysian Manufacturers (FMM) has warned that over half of local exporters anticipate a sharp decline in demand if the tariff hike proceeds, with nearly half expecting profit margins to be slashed by more than 30%. As negotiations continue, the looming threat of escalated trade barriers raises critical questions about Malaysia’s economic resilience and the future of its export-driven industries.

Impending Tariffs Spark Widespread Concern

The proposed 24% tariff, set to take effect in early July 2025, has sent shockwaves through Malaysia’s business community. According to the FMM, 52% of exporters surveyed foresee a significant drop in demand from the US, one of Malaysia’s largest trading partners. The potential for profit margins to be cut by over 30% for many firms adds further strain, particularly for cost-sensitive sectors like electrical machinery services (EMS), which play a vital role in supporting US-linked manufacturing operations in Malaysia.

FMM President Tan Sri Soh Thian Lai highlighted the gravity of the situation in a recent statement. “While the full financial impact and potential job losses remain difficult to quantify, the combined effects of order cuts, shrinking margins, and prolonged cost pressures could have serious repercussions for the country’s export-reliant industries” he cautioned. Even if the US agrees to a reduced tariff range of 10 to 15%, Soh warned that Malaysia would still face a competitive disadvantage compared to countries with preferential access to the US market, potentially prompting American buyers to shift sourcing decisions over the long term.

Since April 2025, Malaysian exports to the US have already been subject to a blanket 10% tariff, a measure that has squeezed companies accustomed to low or zero tariffs on their products. “A further escalation to 24% would significantly deepen this impact and pose a serious threat to Malaysia’s export performance” Soh added, underscoring the urgency of securing a favorable deal before the deadline.

Negotiations and Government Response

In response to the looming deadline, the Malaysian government has intensified efforts to mitigate the impact. The Investment, Trade and Industry Ministry (Miti) has been commended by the FMM for its proactive stance, particularly through the National Geoeconomic Command Centre Task Force. A recent trade mission to Washington, DC, saw Malaysian officials engage directly with the US Trade Representative to negotiate exemptions, focusing on key products like steel and aluminum.

These engagements are seen as critical, especially given the 90-day pause offered by the US in April to discuss country-specific rates based on trade imbalances. With the negotiation window set to close in early July, the stakes are high. If no agreement is reached, the full 24% tariff will be imposed, potentially disrupting supply chains and straining bilateral trade relations.

While the government’s efforts have been lauded, some industry observers remain cautious. Lee Heng Guie, executive director of the Socio-Economic Research Centre, noted that many businesses are closely monitoring developments. “Since April, some local exporters, particularly in the electrical and electronics sector, have been front-loading their shipments to the United States to beat the higher tariff deadline” he explained. This temporary spike in export numbers is expected to persist into early June, based on feedback from businesses and buyers.

However, not all US buyers are willing to expedite shipments. Lee pointed out that some are adopting a cautious “wait-and-see” approach, delaying deliveries until the final tariff decision is clear. “If the tariff jumps to 24%, they may not be willing to absorb that additional cost. On the other hand, if it remains at 10% or less, they would prefer to wait and proceed once the situation stabilizes” he said. Ongoing negotiations between US buyers and Malaysian sellers on how to share the tariff burden further complicate the adjustment process, which Lee predicts will extend well beyond the 90-day pause.

Economic Implications and Sectoral Impact

Malaysia’s economy, heavily reliant on exports, faces a precarious moment. The electrical and electronics (E&E) sector, a cornerstone of the country’s export portfolio, is particularly vulnerable. Many companies in this sector have built strong ties with US manufacturers, and a steep tariff hike could disrupt these relationships, leading to reduced orders and potential layoffs. Other industries, such as steel and aluminum, are also at risk, though targeted exemptions could provide some relief if negotiations succeed.

Beyond immediate financial losses, there are broader concerns about Malaysia’s global competitiveness. Countries with existing trade agreements or lower tariffs with the US could gain an edge, prompting American firms to rethink their supply chains. This potential shift in sourcing decisions, as flagged by the FMM, could have lasting repercussions, even if tariffs are eventually reduced.

Ahmad Yazid Othman, a senior fellow at the Malay Economic Action Council, offered a pragmatic perspective on the crisis. “In principle, Malaysia must accept that tariffs will be imposed. We hope the government will do more to spur domestic consumption and prepare for the increase” he stated. Othman emphasized the importance of diversification, arguing that not all sectors will be equally affected. “As an exporting country, we shouldn’t put all our eggs in one basket. We need to spread the risk by investing in more economic opportunities across other sectors, especially those not reliant on exports” he urged, suggesting there could be a silver lining if Malaysia seizes the moment to rethink its economic strategy.

Looking Beyond the Tariff Deadline

As the July deadline approaches, Malaysian exporters are caught between immediate survival tactics and long-term planning. Front-loading shipments offers temporary relief for some, but it does not address the underlying uncertainty. If the tariff escalates to 24%, the cost burden could prove unsustainable for many firms, particularly small and medium-sized enterprises already grappling with tight margins.

For now, the focus remains on negotiations. The outcome of talks between Malaysian officials and the US Trade Representative will shape not only bilateral trade relations but also the trajectory of Malaysia’s export sector. A favorable deal—potentially capping tariffs at a lower rate or securing exemptions for key industries—could provide breathing room. However, failure to reach an agreement risks deepening economic pressures at a time when global trade dynamics are already fraught with challenges.

Amid these uncertainties, voices like Othman’s call for diversification and domestic growth resonate strongly. While exports have long been a pillar of Malaysia’s economy, the current crisis underscores the need for a more balanced approach. Whether through bolstering local consumption or exploring new markets, the path forward may require a fundamental shift in how Malaysia navigates its economic future.

As the clock ticks down, the nation watches closely. The resolution of this tariff dispute will test Malaysia’s resilience and adaptability, with implications that could reverberate across South East Asia’s trade landscape for years to come.