Malaysia’s export sector feeling the strain as US tariff deadline nears
Industry players warn that the greatest damage may come not from the tariff itself, but from the deepening uncertainty over trade terms.
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KUALA LUMPUR: Malaysia’s export sector is showing early signs of strain ahead of a 25 per cent United States tariff set to take effect on Aug 1, as manufacturers report dwindling orders and growing buyer hesitation.
The US last week raised the tariff rate on Malaysia by one percentage point from 24 per cent. While the increase may appear marginal, industry players said the real cost lies in the escalating uncertainty surrounding trade policy.
Manufacturers told CNA that without clear direction, fewer orders are coming in. Some worry that orders may be rerouted to regional competitors like Vietnam and the Philippines.
"It's important for manufacturers to see clarity in the way forward, to make our investment decision or even our production planning,” said Jacob Lee, vice-president of the Federation of Malaysian Manufacturers.
“On the other side, the US customers are also adopting a wait-and-see (approach). Will there be a flip flop? Will there be a postponement?” he added.
“They are also not giving us orders like before. They are giving us smaller orders so as to just cater to their pressing needs.”
TRADE PERFORMANCE WITHIN EXPECTATIONS
While Malaysia’s overall macroeconomic forecasts remain strong, the new US tariff could weigh heavily on growth and profitability across export-driven sectors.
During a press conference on Monday (Jul 15), Investment, Trade and Industry Minister Tengku Zafrul Aziz said the country’s trade performance for 2025 remains within expectations and is on track to hit its growth target of 4 to 5 per cent.
Still, he added that his ministry expects global trade to moderate in the second half of the year amid uncertainties due to the US tariffs.
The latest trade numbers for June will be released later this week.
Zafrul also told reporters that negotiations with the US are being accelerated as the Aug 1 deadline looms.
These talks follow a meeting between Malaysian Prime Minister Anwar Ibrahim and US Secretary of State Marco Rubio on the sidelines of the ASEAN (Association of Southeast Asian Nations) Regional Forum in Kuala Lumpur last week.
While Zafrul said he remains optimistic about a mutually beneficial deal, he reiterated that Malaysia would not give in on issues tied to national interests.
"The terms negotiations … There are no new terms, but of course, there are concerns on non-tariff issues. We've addressed one of that through the strategic Trade Act, where we have now put one item in the list,” he noted.
“But on issues where we cannot move, which is a red line – if you are in a sovereign country, and for strategic interests, are you willing to do that? So we need to study that carefully," he added.
DUAL-TRACK APPROACH
Analysts warned that Malaysia must now move on two tracks – mitigating short-term shocks and rethinking its long-term trade game.
"This is where you have to double down efforts, not just on the trade and finance and economic track, but also on the diplomatic track,” said Amir Fareed Rahim, director of strategy at public affairs and political risk consultancy KRA Group.
“What is important, in the short term, is the assistance that the government can give to the exporters who are managing this sudden 25 per cent export tariff, so there will be margin pressures on these businesses," he added.
Experts also highlighted the need for trade diversification, both in sectors and export markets, as part of Malaysia’s long-term economic resilience strategy.
With billions of dollars in trade at stake, Malaysia faces a critical test – trying to shield its economy in an increasingly protectionist world while standing firm on national interests.
