KUCHING (April 17): While many are still wary of the effects and impact of the US reciprocal tariffs on the world, especially in Malaysia, there may still be a silver lining to the 24 per cent tariff imposed by the United States.
While the tariff presents a major challenge to Malaysia’s export-driven economy, it could also be a catalyst for long-term reform and strategic diversification.
The tariff hike, which targets key sectors such as electronics, rubber products, and palm oil, may weigh on Malaysia’s short-term trade outlook as it forms the backbone of the country’s exports and are deeply tied to global supply chains.
“The electronics sector may see reduced competitiveness in the US market due to higher costs. Palm oil, already under environmental scrutiny, could lose its price edge,” said Dr Nivakan Sritharan, lecturer at the Faculty of Business, Design and Arts, Swinburne University of Technology, Sarawak Campus.
“Rubber products like gloves and industrial parts may also suffer margin pressure if US importers push costs onto suppliers.”
However, palm oil exports to the US remain minimal. According to Universiti Malaysia Sarawak (Unimas) faculty of economics and business senior lecturer Dr Jerome Kueh, Malaysia’s global competitiveness, backed by stronger ESG compliance and MSPO certification, helps cushion any direct impact.
He said markets in Asia, the Middle East, and Africa offer stronger growth potential.
Building resilience through policy and diversification
Despite short-term pressures, economists remain confident in Malaysia’s overall resilience.
Kueh echoed Prime Minister Anwar Ibrahim’s view that Malaysia is unlikely to enter a recession due to the country’s strong macroeconomic fundamentals and sound planning.
“The tariff will not push Malaysia into recession. Our economy is supported by robust domestic demand, secure employment, and the recovery of international tourism.”
He added that services sector namely retail, hospitality and logistics is also posting robust growth that could mitigate the effects of declining exports.
“Simultaneously, persistent public and private infrastructure expenditures, along with strategic governmental assistance under the MADANI framework, sustain overall economic activity,” he added.
He noted that although exports constitute more than 60 per cent of Malaysia’s GDP, they are no longer the sole driver of growth. Private consumption, combining with dynamic investment and continuous capital projects, is increasingly focal in maintaining the economy.
“Furthermore, the expansion of the digital economy and service-oriented sectors are becoming the foundations of the persistent economic strength of Malaysia,” he said.
On the policy front, Nivakan said with government economic framework like the Madani Economic Narrative, the National Energy Transition Roadmap (NETR), and the New Industrial Master Plan (NIMP) 2030, it lays the foundation for long-term resilience.
These frameworks aim to build industrial capacity and reduce over-reliance on any single market.
“The Budget 2025 allocated significant funds for industrial upgrading, digitalisation, and SME empowerment. It acknowledges that the Malaysian economy is not isolated and is influenced by global trends.
“At the same time, it prepares Malaysia for external risks such as global trade tensions or slowdowns in major economies like the US, China, or Europe,” added Nivakan.
He said the broader economy remains supported by steady consumption, infrastructure investment, and targeted fiscal aid.
Indicators such as export volumes, the ringgit’s strength, the manufacturing PMI, and job data can help the public assess how well Malaysia is coping.
Still, risks remain. If the US escalates tariffs or its trade tensions with China persist, Malaysia may face wider systemic effects. Weaker foreign direct investment due to geopolitical instability could hamper capital formation and job creation.
On the ground, Nivakan noted Malaysian exporters are already exploring various adaptive measures.
He said some companies have begun shifting parts of their production or repackaging processes to lower-tariff jurisdictions like Singapore.
“However, this workaround is likely to be temporary. The longer-term response must focus on enhancing productivity, automating operations, and diversifying market exposure beyond the US,” he said.
Meanwhile, Kueh said many companies may explore cost-reduction strategies, renegotiate agreements, or transfer segments of their value chain to shift part of their value chain to circumvent tariff risk in the short term.
“We anticipate a rapid diversification of markets, as exporters increasingly focus on growing markets in Asean, the Middle East and China, where the demand for Malaysian goods is robust and tariff risks are minimised.
“Trade agreement like Regional Comprehensive Economic Partnership (RCEP) will become more significant as companies aim to exploit preferential market access and diminished trade obstacles.
“The tariff pressure may also drive efforts to improve domestic supply chains in electronics, rubber, and agriculture. This may result in increased investment in automation, digitisation, and vertical integration to raise productivity and competitiveness,” he added.
On this note, Nivakan stressed that Malaysia must reduce its reliance on traditional markets like the US.
“While the US remains a key trading partner, over dependence on any single country exposes us to shocks beyond our control. Expanding into Asean, the Middle East, Africa, and Latin America cushions those risks and opens new growth paths.”
He also pointed to export diversification that promotes innovation. By serving new markets with different regulations and consumer expectations, he said Malaysian firms can upgrade and add value to their offerings.
This approach aligns with national goals under the Madani Economy and NIMP 2030 to build a more sustainable, integrated economy.
“In short, diversifying our export portfolio is not just a reactive measure to tariffs; it’s a proactive step toward economic maturity,” he added.
Malaysia’s role in Asean and the global trade shift
As the current Asean Chair, Malaysia is in a unique position to mediate and coordinate a collective response.
Nivakan said Asean must present a united front to ensure US trade policies don’t hinder the region’s development.
“(Investment, Trade and Industry) Minister Tengku Zafrul Abdul Aziz’s leadership in initiating dialogue with the US signals that Malaysia is committed to diplomacy rather than confrontation,” he said.
He said as chair, Malaysia can drive Asean consensus in talks with the US, push for tariff reviews, and promote digital trade and customs interoperability. This helps ensure the US remains a constructive partner in regional integration.
Meanwhile, Sarawak Business Federation secretary-general Datuk Jonathan Chai Voon Tok said Malaysia should convene an Asean-US Economic Dialogue to improve transparency on tariff policies and encourage win-win trade outcomes.
He suggested Malaysia push for updates to the Asean-US Trade and Investment Framework Arrangement (TIFA) to include safeguards against arbitrary or overly broad tariffs.
He also proposed that Malaysia champion a “supply chain resilience pact” to position Asean as a reliable alternative to China.
With this, Asean can lobby for phased tariffs or exemptions from the US by leveraging the region’s collective capacity while reinforcing economic interdependence.
“By leading a coordinated and unified response, Malaysia can help Asean avoid a fragmented approach and ensure that small and medium economies are not disproportionately affected by major power rivalries,” he said.
Kueh added that Asean countries must coordinate to reduce trade diversion by enhancing integration, standardising rules of origin, and offering investment incentives.
The region can position itself as a unified manufacturing hub by easing the cross-border flow of intermediate goods, especially in electronics and machinery.
As Chair, Malaysia possesses the opportunity and commitment to steer Asean’s strategic response. Asean should focus on enhancing intra-regional commercial connections and the utilisation of Free Trade Agreements like the RCEP and Asean+3 (China, Japan, Korea) due to the greater access to large consumer bases and manufacturing networks.
The RCEP regulations offer reduced tariffs and enhanced market access for member nations, potentially compensating for diminished revenue from exports to the United States by fostering intra-Asian trade.
But to benefit, Asean must collaborate to mitigate trade diversion by enhancing integration, standardising rules of origin and providing investment incentives, he said.
Source: https://www.theborneopost.com/2025/04/17/us-tariff-may-spur-reform-and-diversification-in-malaysia/