KUALA LUMPUR (Aug 18): Investment, Trade and Industry Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz said Malaysia can’t afford to retaliate against the US over tariffs, even as a possible 300% tax on chips and semiconductors looms.
The minister cited both its strategic position as a key trade and investment partner of Malaysia as well as its position as the world’s largest export market as reasons for a more strategic and diplomatic approach. The US is the largest investor in Malaysia and second-largest trading partner behind China.
“So, we can’t afford to retaliate, but what’s important is to engage,” Tengku Zafrul said in an interview with CNBC’s Squawk Box Asia on Monday.
Although new US tariffs are set at 19% for US-bound products, a possible 300% semiconductor and chips tariff threatens Malaysia’s growth.
Tengku Zafrul said the situation is still ongoing, as the US is still investigating under Section 232 of the US Trade Expansion Act to decide on specific sector tariffs.
“That, I think, means they have yet to decide. Having said that, we were initially hearing 100%, now it's 300%, so engagement is continuing. It will be a concern if it does get to a number that is going to hurt the semiconductor sector.
“However, having said that, if you look at the semiconductor supply chain, all Asean countries are quite involved in that supply chain into the US, China, and Europe. And, this will have an impact on not just Malaysia or Asean, but globally as well,” he added.
Of Malaysia’s exports to the US, around 60% comprise electrical and electronics (E&E) goods, half of which are semiconductor products. Malaysian exports of semiconductors are currently exempted from US tariffs.
US President Donald Trump has said levies on imported semiconductor and chips could come as soon as this week and reach up to 300%.
After months of negotiations, Malaysia came out of the US tariff talks with a 19% tariff rate — in line with neighbours Indonesia and Thailand. Vietnam stands higher at 20%, while service-dominant Singapore enjoys a 10% tariff.
In the talks, Malaysia stood firm on certain red lines, a point Zafrul reiterated in his interview with CNBC. “There were some red lines that we discussed during our tariff negotiation, and they understood.”
However, Malaysia’s choice not to concede on these red lines — in turn not agreeing with all of the US’ requests — may be one of the reasons why the country only got 19%, Zafrul added.