The United States may lower its proposed tariffs on Malaysian goods to a baseline of 10%, according to Malaysia’s Investment, Trade and Industry Minister Zafrul Aziz.

Speaking to Bloomberg TV during a regional summit in Kuala Lumpur, Zafrul said that while a zero-tariff rate is unlikely, reducing the current rate of up to 24% would benefit Malaysian industries.

Zafrul mentioned that ongoing negotiations with Washington aim to decrease the tariffs, initially proposed under the Trump administration.

In return, the US seeks measures from Malaysia to address trade imbalances, eliminate non-tariff barriers, and prevent the diversion of sensitive US technology.

🔗 Source: Bloomberg

🧠 Food for thought

1️⃣ Malaysia’s semiconductor industry faces significant vulnerability amid tariff negotiations

Malaysia’s electrical and electronics sector constitutes 40% of its total exports, with semiconductors making up nearly half of its exports to the US, making it particularly sensitive to trade policy changes 1.

A survey by the Malaysia Semiconductor Industry Association revealed that 65% of members expect long-term negative impacts from US trade policies, highlighting industry-wide concern despite the temporary tariff pause 1.

This vulnerability explains why Malaysia views a reduction to 10% tariffs as a “win” despite initially hoping for zero tariffs. The semiconductor industry cannot afford higher rates without significant disruption.

The country hosts major firms like Intel along with numerous Chinese companies that established operations in Malaysia partly to circumvent existing US restrictions, creating a complex ecosystem that’s now under pressure 1.

Regional competition intensifies the challenge, as both Vietnam and Mexico are actively negotiating favorable US trade terms while offering similar manufacturing capabilities, potentially threatening Malaysia’s position in global supply chains 1.

2️⃣ Southeast Asian nations caught between economic pragmatism and geopolitical pressures

The 90-day tariff suspension represents a critical negotiation window for Malaysia and other Southeast Asian nations, with a baseline 10% tariff seemingly non-negotiable despite the region’s strategic importance 2.

Malaysia’s response highlights a pragmatic approach, accepting the 10% “floor” while implementing a US$356 million relief package for affected small and medium enterprises to cushion the economic impact 3.

The US trade deficit with Malaysia reached $24.8 billion in 2024, making it a primary target in Trump’s efforts to address trade imbalances, despite the country’s longstanding position as a key US ally in the region 4.