US 100% Semiconductor Tariff Threatens Malaysia’s $15B Export Sector Amid Strategic Diplomatic Efforts

Malaysia faces a critical juncture in its semiconductor industry as the United States’ imposition of a 100% tariff on imported semiconductors threatens to disrupt one of the nation’s most vital economic pillars. With semiconductor exports to the US valued at RM60.6 billion in 2024—accounting for around 20% of Malaysia’s total semiconductor exports—the sector’s outlook hinges on ongoing negotiations and policy clarifications.

The tariff, implemented as part of US efforts to bolster domestic chip manufacturing and secure supply chains, applies broadly to semiconductor imports from countries without substantial US-based production. Critically, exemptions are granted to companies investing in or operating semiconductor fabs on US soil, a provision designed to incentivize reshoring but one that complicates Malaysia’s export landscape.

About 68% of Malaysia’s semiconductor exports to the US come from American multinational corporations with operations locally and investments in US manufacturing, potentially qualifying these exports for exemption. Nonetheless, the remaining share faces tariff exposure, raising stakes for Malaysia’s semiconductor hubs such as Penang and Kedah, which collectively employ tens of thousands of skilled workers.

Economists estimate that unmitigated tariff application could lead to significant job losses—potentially up to 100,000—and reduce Malaysia’s GDP by notable margins. Each incremental increase in tariff-exposed exports is projected to shave approximately 0.29% off GDP growth. These figures spotlight semiconductor manufacturing not just as an industry but as a strategic economic asset.

From a broader perspective, the US tariff policy exemplifies the complex interplay between national security, industrial policy, and globalization. Malaysia sits at the crossroads of these forces, balancing the need to maintain global supply chain leadership while adapting to rising protectionism and geopolitical risk.

For manufacturers and exporters, the evolving tariff environment demands agility: from reassessing supply chains and market strategies to intensifying investments in innovation and workforce skills. The Malaysian government’s concurrent focus on digital economy growth and trade negotiations aims to insulate the semiconductor sector from further shocks.

While the current uncertainty clouds near-term prospects, Malaysia’s semiconductor ecosystem remains robust, supported by strong partnerships with US firms, government incentives, and a skilled talent pool. The challenge lies in navigating policy shifts without compromising competitiveness or investment momentum.

In summary, the US 100% semiconductor tariff poses a formidable challenge to Malaysia, threatening revenue, jobs, and industrial stability. Yet through targeted diplomacy, strategic diversification, and sectoral resilience, Malaysia has opportunities to mitigate risks while positioning itself for the next phase of semiconductor industry evolution.