Image credit: The Business Times
KUALA LUMPUR: US President Donald Trump is set to implement a new round of tariffs this week, calling the occasion 'Liberation Day.' Malaysia is among 15 countries identified as potential targets due to trade imbalances.
According to UOB Global Economics and Market Research, the ultimate impact of these tariffs will depend on negotiations between Malaysia and the US, as well as the strategic responses of the Malaysian government and businesses in addressing the trade restrictions.
Senior economist Julia Goh and economist Loke Siew Ting said in a note that Malaysia continues to emphasise its "centrality stand" in the tariff war, along with plans to expand its trading markets, enhance supply chain resiliency and promote localisation.
"Agility and flexibility in cost structure and business operating models are equally important for firms to sail through the risks," the note said.
The economists have outlined three possible tariff scenarios for Malaysia, with the optimistic scenario being that the US imposes tariffs of less than 10 per cent on specific sectors or Malaysia's exports to the US.
They added that in this case, major economies would implement limited or less severe retaliatory measures, allowing room for negotiations, while Malaysia would remain unaffected by retaliation.
"The global economy is on a soft landing alongside strong US economic growth momentum and stable global financial conditions amid volatility.
"Under this scenario, Malaysia's export to the US is expected to slow down and the secondary effects are expected to be manageable with limited supply dumping and healthy price competition from regional economies due to economies of scale," they said.
Goh and Ting suggested a possible scenario where the US imposes tariffs of 10 per cent to 30 per cent on most sectors or Malaysian export goods, including specific tariffs on autos, metals, semiconductors, and pharmaceuticals.
"There are tit-for-tat retaliations from major economies with room for negotiations. Malaysia still holds the stance of neutrality in the trade war without retaliatory measures.
"The global economy is on a soft landing but the US economy is set to soften, with a possibility of a technical recession at some point."
They stated that while global financial conditions remain stable despite heightened volatility, Malaysia's exports to the US would decline in this scenario, with significant secondary effects such as increased supply dumping and price competition from regional economies, particularly China, impacting domestic businesses to some extent.
In a pessimistic scenario, Goh and Ting stated that the US would impose tariffs exceeding 30 per cent on all Malaysian imports.
"There is a full-blown global trade war with limited room for negotiations. Both the global and US economies fall into recession while financial contagion effects are felt across the world.
"Under this scenario, Malaysia's exports contract along with broad declines in global trade. The secondary effects on domestic sectors are worsened due to strong supply dumping and stiff price competition from around the world," they added.
The economists stated that, considering Malaysia's trade position with the US, the average tariff gap, and the share of imports sourced from China across different product categories, the key Malaysian products at risk include electrical and electronics (E&E), rubber products, furniture, and optical and scientific equipment.
Similarly, SPI Asset Management managing partner Stephen Innes told Business Times that with the US reviving its trade war strategy and targeting the "dirty 15" surplus countries, Malaysia is now directly in the line of fire.
"The real risk lies with the E&E sector—which makes up a staggering 40 per cent of Malaysia's total exports and includes high-value semiconductors and electrical machinery sent straight to the US.
"This is not a marginal risk; Malaysia is the third-largest Asian supplier of electrical goods to America, and any tariff shot here would ripple deep," he said.
Innes mentioned that if rubber products, furniture, and scientific equipment are included, multiple high-volume sectors would be at risk.
He also added that if the tariff rate stays below 10 per cent, the impact would likely result in slower US growth, but the fallout would be manageable.
"That said, if Washington leans into the 10 per cent to 30 per cent range or higher, it is game on for serious pressure—slower exports, swollen inventories, and a possible hit to Malaysia's trade balance.
"Above 30 per cent, and you're staring at something much more systemic. And let's not forget—you can't just flip a switch and pivot that capacity inward or immediately find new buyers unless you're willing to offer deep, deep discounts," he added.
Innes stated that the bigger concern now is whether this will evolve into broader trade restrictions beyond just tariffs.
He noted that the tone from Washington is becoming more protectionist, and Malaysia's inclusion on the "dirty" list is not just symbolic—there is an increasing risk of non-tariff barriers, regulatory tightening, or even targeted compliance challenges if the situation escalates.
"As Asean chair for 2025, it is already engineering a summit with Washington to confront tariff concerns head-on. Smart diplomacy.
"But let's be honest—the real action will be in bilateral talks. Will exemptions be granted? Possibly. But let's not kid ourselves—Kuala Lumpur will likely have to make some uncomfortable concessions to get carve-outs or softer terms.
"I would be watching domestic E&E firms for clues—they've been pulled into high-level discussions with ministers, signalling that contingency plans are being drawn up behind the curtain," Innes said.
Innes stated that, from a positioning perspective, he plans to keep his Malaysian export exposure minimal until there is more clarity.
"This story isn't just noise; it's a headline risk that could reshape supply chains if things spiral. If you have got skin in the game, especially in the E&E or rubber sectors, it is time to start thinking about hedges or exit ramps," he added.
Source: https://www.nst.com.my/business/economy/2025/04/1196160/malaysia-braces-us-tariff-impact