Malaysia Warns: US Removal Of Semiconductor Tariff Exemption Will Hurt Competitiveness

The Malaysian government warned in a report that the removal of tariff exemptions from Malaysian semiconductor exports could harm its competitiveness and strain supply chain networks.

President Donald Trump's administration imposed a 19% tariff on Malaysian exports to the United States in August, although some items, including semiconductors, are currently temporarily exempt pending a U.S. national security investigation.

Also in August, Trump proposed a 100% tariff on imported chips, although he said the tariff would not apply to companies that have manufacturing operations in the United States or plan to establish them.

The Malaysian government said in its economic outlook report released with the 2026 budget that any removal of the semiconductor exemption "could lead to a rebound, reduce competitiveness, and strain sectors that are closely integrated with the U.S. supply chain." Malaysia is the world's sixth largest exporter of semiconductors.

Malaysia has expected its economy to be hit due to US tariffs, and gross domestic product (GDP) growth is expected to decrease by 0.76 percentage points as a result, the report said.

The report also said that Malaysia's imports and exports are expected to shrink next year due to some tariff factors.

Malaysia had lowered its growth forecast for 2025 to between 4% and 4.8% in July, lower than its initial estimate of 4.5% to 5.5%, citing trade and tariff uncertainty.

It expects economic growth in 2026 to be between 4% and 4.5%.