Chip companies in Malaysia are postponing investments and expansion plans due to uncertainty over potential tariffs from the United States, according to Wong Siew Hai, president of the Malaysia Semiconductor Industry Association.

The firms are seeking an extension of the tariff exemption on semiconductors beyond the August 1, 2025 deadline, which could lead to higher levies.

Wong said, “That situation, if it’s clear, then I think investments will continue. Everyone is waiting to see how it all plays out.”

US President Donald Trump suggested a 25% tariff on Malaysian goods, including semiconductors, unless an agreement is reached.

Malaysia was initially subject to a 24% tariff in April 2025, which was later reduced to 10% following a 90-day pause for discussions.

🔗 Source: Bloomberg

🧠 Food for thought

1️⃣ Malaysia’s semiconductor sector faces uncertainty in the crossfire of global trade tensions

Malaysia’s chip industry is vulnerable to trade disruptions, with total merchandise trade accounting for 120% of its GDP, significantly higher than many economies but lower than regional hubs like Singapore (212%) and Hong Kong (331%)1.

The uncertainty is impactful because Malaysia produces approximately 35.23 billion semiconductors annually and generated RM387.45 billion in semiconductor exports in 2023, positioning it as the sixth-largest global chip exporter2.

The country plays a critical role in the global semiconductor supply chain, with approximately 10% of the world’s semiconductors packaged in Malaysia, making it a key node in an industry central to electronics manufacturing worldwide2.

This uncertainty has already led to reduced profit margins for Malaysian exporters under the previous 10% tariff, suggesting the proposed 25% rate could have significantly greater impacts on investment decisions3.

The IMF estimates that a 10% increase in global tariffs could reduce global growth by 0.5%, a concerning projection for Malaysia’s semiconductor industry, which relies heavily on maintaining its position in global supply chains1.

2️⃣ Domestic policy changes compound international trade pressures

Malaysian semiconductor companies face a “double pressure” scenario, with the expanded Sales and Service Tax (SST) implemented on July 1 increasing domestic costs at the same time as international tariff threats loom3.

Industry representatives highlight that the absence of business-to-business exemptions in the new SST structure particularly impacts manufacturing sectors with complex supply chains like semiconductors3.