KUALA LUMPUR (April 8): Malaysian exporters to the US are considering relocating parts of their business to the US as one of the strategies to maintain competitiveness and offset the impact of the US' reciprocal tariff.

Invest Penang, the state’s investment promotion agency, stated on Tuesday that export-oriented companies are rapidly reevaluating their strategies, adjusting profit projections, and exploring supply chain adjustments, including shifting production to countries with lower tariffs or relocating operations to the US.

“Malaysian automated test equipment (ATE) companies that export to the US are actively evaluating the feasibility of establishing final module assembly lines within the US to circumvent the steep tariff increase and maintain market access,” it said in the statement.

On the other hand, the Federation of Malaysian Manufacturers (FMM) told The Edge its 450 members that export to the US are also exploring adjustments that include operational efficiency upgrades, export diversification, and contract revisions to ease expected pressure to renegotiate pricing with US customers due to the higher tariffs. 

It said renegotiations could lead to lower profit margins or cost-sharing arrangements, depending on demand and supply chain factors.

FMM said it also foresees a shift in the regional trade landscape, with countries hit harder by the US tariffs potentially diverting exports to Malaysia or Asean markets. This could result in an influx of lower-cost imports, which may pose a threat to local manufacturers if safeguards are not put in place to manage competitive pressures.

Invest Penang concurred, saying that while immediate concerns about competition from Asean countries and India remain moderate, ongoing trade negotiations between Vietnam and the US are being closely watched. 

It said a favourable outcome could alter regional competitiveness and influence future investment flows.

The US has imposed a 24% tariff on Malaysian exports as part of a two-phase increase in duties based on the value of goods, added on top of existing tariffs. 

Phase 1: On April 5, 2025, a 10% flat tariff was applied to all imported goods, unless exempted. This is a general duty for all countries under the International Emergency Economic Powers Act (IEEPA). 

Phase 2: From April 9, 2025, country-specific tariff rates take effect, and Malaysia will face a 24% tariff due to trade imbalances and other factors considered by the US.

Certain goods such as semiconductors, pharmaceuticals, copper, lumber, bullion, and some critical minerals are exempted as well as products already subject to separate US tariff measures like steel, aluminium, and vehicles.

“While it is still early to fully assess the market response, our members have indicated that current shipments remain unaffected, particularly those already in transit or under existing contracts. No immediate delays or disruptions have been reported, and sales orders continue as scheduled,” it said. 

FMM once again urged the Malaysian government to strengthen its government-to-government (G2G) engagement with US authorities, similar to efforts by countries like Vietnam and Indonesia. 

It said this is crucial for negotiating flexibility under the new tariffs and maintaining fair trade relations. 

Industry players also call for more transparency and communication on these initiatives to help US customers understand Malaysia’s proactive approach.

Additionally, FMM advised against introducing new taxes in 2025 due to current economic challenges. The manufacturing sector, which contributes 68.6% of total tax revenue, is under pressure from rising costs. The expansion of the sales and service tax (SST) in May 2025 and a planned increase in electricity tariffs in July will further increase costs, especially for mid-tier, large manufacturers, and SMEs. 

FMM advocates for a moratorium on new taxes or regulations to avoid additional strain on the industry.