Malaysia is in talks with semiconductor companies operating in the country to assess the potential impact of U.S. tariffs on chip exports, Trade Minister Tengku Zafrul Aziz revealed in an interview. As the Southeast Asian nation plays a critical role in the global semiconductor supply chain, the looming tariffs pose a significant challenge to its export-driven economy.
With the U.S. government considering imposing tariffs of “25% or higher” on semiconductors, Malaysia is bracing for potential economic disruptions. The nation is home to key semiconductor players, including major U.S. firms like Intel and GlobalFoundries, and serves as a vital supplier of chips to the United States. In 2023 alone, Malaysia exported $16.2 billion worth of semiconductors to the U.S., making up nearly 20% of America’s chip imports.
The proposed tariffs were first announced by former U.S. President Donald Trump in February. However, the timeline and specifics of their implementation remain uncertain. In response, the Malaysian government has begun discussions with chip manufacturers on how the additional costs might be absorbed and whether consumers or businesses will bear the financial burden.
Speaking to Reuters, Tengku Zafrul stated that the government is evaluating the magnitude of the tariffs before deciding on any countermeasures.
“We’re discussing with the companies… whether the tariffs will be absorbed by the consumers,” he said. “Exports will continue to happen, but someone has to pay for the higher cost, whether it be the consumers or the companies that absorb it.”
The trade minister clarified that Malaysia has not yet decided whether to offer financial assistance to chip companies to offset the impact of tariffs. However, given the importance of the semiconductor industry to the country’s economy, government intervention remains a possibility.
For Malaysia, which accounts for 7% of the world’s semiconductor trade and plays a crucial role in the backend assembly, testing, and packaging of chips, any disruption in exports could have wider economic repercussions.
The potential imposition of tariffs is part of broader U.S. efforts to bolster its domestic semiconductor manufacturing while reducing reliance on foreign suppliers, particularly those in Asia. Washington has been pushing for “onshoring” and “friendshoring” strategies to secure supply chains amid rising geopolitical tensions with China.
The U.S. CHIPS and Science Act, passed in 2022, has already injected billions of dollars into domestic chip production. However, Malaysia’s trade relationship with the U.S. remains robust, and it is unclear whether tariffs would significantly shift supply chains in the short term.
According to industry analysts, the tariffs could have unintended consequences. If U.S. semiconductor firms operating in Malaysia are forced to absorb the cost, it may lead to higher chip prices, affecting American consumers and businesses. Alternatively, if companies pass the cost onto consumers, this could contribute to inflation in the U.S.
Despite concerns over tariffs, Malaysia continues to strengthen its role in semiconductor manufacturing and artificial intelligence (AI) development. The country has been attracting substantial investments from U.S. tech giants, including Microsoft, Google, Amazon, and Oracle, which have been expanding their data centers and AI capabilities in Malaysia.
Tengku Zafrul emphasized that Malaysia’s data center sector is unlikely to be affected by new U.S. export restrictions on advanced chips. He noted that demand for AI-driven services remains strong and that Malaysia’s infrastructure growth aligns with regulatory limitations imposed by Washington.
“When we talk to the data center players—Microsoft, Google, AWS—there is no concern because the allocation (under the restrictions) is adequate,” he explained. “There will be no impact on the growth in data centers because AI will be used by many.”
In the final days of President Joe Biden’s administration, Washington introduced new rules limiting the deployment of AI computing power outside the U.S. Starting in May 2025, American cloud service providers will only be allowed to deploy up to 50% of their total AI computing power overseas, with no more than 7% allocated to Malaysia and other nations without privileged access.
These restrictions are aimed at curbing China’s access to AI-driven semiconductor technologies but could have ripple effects on the global tech industry, including Malaysia.
Industry experts believe that while the restrictions could slow down some AI-related expansions in Malaysia, they are unlikely to derail the country’s overall trajectory as a regional hub for data centers and semiconductor manufacturing.
As Malaysia navigates these geopolitical and economic challenges, the government is expected to take a strategic approach to protect its semiconductor industry while maintaining strong trade relations with the U.S. and other global partners.
Negotiating Trade Exemptions or Mitigations – The government may engage in diplomatic talks with U.S. officials to seek exemptions or reduced tariff rates on specific semiconductor products.
Providing Financial Support to Semiconductor Firms – If tariffs significantly impact businesses, Malaysia might explore incentives, tax breaks, or subsidies to help companies offset increased costs.
Diversifying Export Markets – Malaysia may look to expand its semiconductor exports to other key markets, such as Europe and India, to reduce reliance on the U.S.
Strengthening Domestic Semiconductor Manufacturing – By increasing local investments and collaborations with international firms, Malaysia can enhance its semiconductor ecosystem and reduce vulnerability to external trade policies.
The uncertainty surrounding U.S. tariffs has created a cautious sentiment in the Malaysian semiconductor sector. While companies continue to assess potential cost implications, there is also a focus on long-term resilience strategies.
A senior executive at a major U.S. semiconductor firm in Malaysia, speaking on condition of anonymity, said that while the tariffs are concerning, the global demand for semiconductors remains strong.
“We are closely monitoring the situation, but Malaysia remains a critical part of our supply chain. The country’s infrastructure, skilled workforce, and government support make it an attractive location for semiconductor operations,” the executive said.
Local analysts have also pointed out that Malaysia’s well-established role in semiconductor backend processing—such as testing and packaging—makes it less vulnerable to the kind of disruptions that might affect chip fabrication hubs like Taiwan and South Korea.
As Malaysia discusses with chip manufacturers how to manage the potential U.S. tariffs, the country’s semiconductor industry remains a vital player in the global supply chain. While the impact of these tariffs remains uncertain, Malaysia is positioning itself to weather the storm by maintaining its strong trade relationships, expanding its AI and data center sectors, and potentially exploring policy responses to cushion any adverse effects.
For now, semiconductor firms and policymakers alike are awaiting further clarity on the U.S. trade policies under the Trump administration. But one thing is clear—Malaysia’s role in the global semiconductor and AI industries will continue to evolve, with resilience and adaptability shaping its future.
