This article first appeared in The Edge Malaysia Weekly on August 18, 2025 - August 24, 2025

US President Donald Trump’s recent threat to impose a 100% tariff on imports of semiconductors from countries without US-based manufacturing has triggered fresh uncertainty in the global chip industry.

Although the policy has not been formalised, the mere prospect of such a drastic measure has set off a wave of concern among Malaysian companies whose operations and exports are closely intertwined with global semiconductor supply chains.

For perspective, semiconductor products exported from Malaysia to the US remain exempt from the 19% reciprocal tariff, which took effect on Aug 8. The reciprocal rate was initially planned at 24% in April, then increased to 25% in July, and eventually lowered to 19% this month.

However, the exemption for semiconductor products is still subject to an ongoing investigation by the US Department of Commerce under Section 232 of the Trade Expansion Act 1962 and tariffs could potentially be imposed, depending on the outcome.

And now, Trump’s proposed tariff reportedly targets all chips and semiconductors going into the US.

Companies already committed to producing chips in the US, or are in the process of doing so, would be exempt. The threat has prompted Malaysian authorities and industry players to assess the direct and indirect implications on production, supply chains, competitiveness and future investment plans.

After all, the semiconductor sector is not only a major contributor to Malaysia’s economy but also a vital source of high-skilled employment and supporting activities.

Minister of Investment, Trade and Industry Tengku Datuk Seri Zafrul Abdul Aziz told parliament that Malaysia has formally requested clarity from the US Trade Representative and Department of Commerce on how the tariff would be implemented.

“We hope that any policy changes and exclusion criteria can be communicated and negotiated early, so that Malaysia’s role as a strategic trading partner can continue to be preserved,” he told parliament during Ministers’ Question Time on Aug 7.

Zafrul highlighted that in 2024, Malaysia exported nearly RM120 billion worth of electrical and electronic (E&E) products to the US, of which semiconductor exports alone accounted for RM60.6 billion. The sector employs around 72,000 skilled workers and supports 7,200 local suppliers, including small and medium enterprises.

“Should semiconductor products be subject to tariffs in the future, the impact on Malaysia will be significant. We risk losing access to the US market as our products would become less competitive due to the tariff,” Zafrul added.

However, it should be noted that nearly two-thirds of Malaysia’s semiconductor exports to the US come from American companies based locally, while some already have a manufacturing footprint in the US and, therefore, are likely to secure exemptions and further mitigate the potential impact.

Interestingly, the chip tariff threat has drawn mixed reactions from the Malaysian semiconductor sector, with opinions diverging on whether it represents a serious risk, a minor disruption, or even an opportunity for local companies positioned to benefit from shifting global production.

ViTrox Corp Bhd (KL:VITROX), which supplies semiconductor test equipment rather than chips, sees the potential tariff as a spur for demand rather than a threat.

Co-founder and president Datuk Chu Jenn Weng observes that higher US investment in chip production could indirectly benefit his company. “Trump is demanding that semiconductor companies invest in the US. More investment in the US means more inspection equipment will be needed in the US, which will have a more positive impact on our business.”

He notes that ViTrox’s core markets include China, Taiwan, Mexico, India and Asean countries, making its exposure to the US market relatively limited. “Hence, even if the 100% tariff includes semiconductor manufacturing equipment, ViTrox will not be impacted negatively.”

Similarly, Pentamaster Corp Bhd (KL:PENTA) co-founder and executive chairman Datuk Chuah Choon Bin emphasises that given the company is not a chip manufacturer, the policy could indirectly generate new business if more chip production is relocated to the US.

“Pentamaster’s exposure to the US 100% chip tariff is minimal to none, as we do not manufacture semiconductor chips and are therefore not directly targeted by the policy.

“In fact, the situation could work to our advantage — if more chip manufacturing capacity moves to the US, this would likely increase demand for our automated test equipment [ATE] and other semiconductor manufacturing solutions,” he says.

Chuah adds that being based in Malaysia allows Pentamaster to ship equipment to the US without facing the same restrictions imposed on Chinese suppliers, creating a competitive advantage.

QES Group Bhd (KL:QES) co-founder and managing director Chew Ne Weng offers a more cautious assessment. He foresees potential indirect consequences for Malaysian semiconductor operations as multinational corporations (MNCs) may reconsider local investments.

“There will be significant indirect impact on Malaysia’s semiconductor segment should the US go ahead with this 100% chip tariff. We will see a major drop in foreign direct investments as most of the semiconductor companies will be forced to reconsider reshoring to the US to avoid the tariff,” he warns.

Chew notes that Malaysian-based MNCs may limit shipments to US-bound integrated circuit (IC) chips while redirecting other production to non-US markets, temporarily pausing expansion and capital expenditure (capex) plans.

JF Technology Bhd (KL:JFTECH) CEO Andy Goh Joo Hwa adopts a measured stance, suggesting that a uniform application of the tariff could maintain a competitive balance across suppliers.

“The eventual impact on profit margins would depend on the specific commercial arrangements, including whether the tariff cost is passed on to customers or absorbed by suppliers under existing contracts,” he says.

Given that uncertainty remains high and the US semiconductor import policy is evolving, it is difficult to forecast direct financial implications.

Exposure to the US market varies widely among Malaysian companies. ViTrox reports that around 10% of group revenue comes from the US, primarily from advanced optical inspection (AOI) and advanced X-ray inspection (AXI) systems for the electronic manufacturing services (EMS) sector.

Chu observes that so far, ViTrox’s American clients have not requested any sourcing shifts or pricing adjustments. “We have a sizeable pool of American customers, but there have been none so far [that made such requests].”

Pentamaster derives more than 30% of its semiconductor-related revenue from the US market, yet Chuah stresses that the company is insulated from the proposed 100% tariff. “We’re not in the business of making or manufacturing chips. We are not affected by the 100% US chip tariff,” he reiterates.

Chew notes that QES’ exposure is minimal, with less than 3% of total revenue derived from the US, supported by two direct American clients and about 15 regional MNC clients. This limited exposure, combined with a diversified supplier ecosystem across East Asia, reduces immediate risk.

JF Tech serves over 30 active US clients, representing 8% to 10% of revenue. Goh notes that the company’s highly customised intellectual property (IP)-protected products make it challenging for customers to find alternatives quickly.

“The majority of JF Tech’s products are highly customised and embedded with proprietary IP, which makes it difficult for customers to source immediate alternatives. As a result, the likelihood of lower-cost substitutes emerging in the short term remains low,” he says.

Despite minimal client-driven shifts so far, executives are monitoring competitor tariffs in other countries.

ViTrox’s Chu notes that Taiwan, Japan, South Korea and China face reciprocal tariffs ranging from 15% to over 30%, but his company maintains a competitive edge.

“ViTrox has competitive products that can effectively rival other competitors in the region. The 19% tariff does not weaken us as the preferred supplier of AOI and AXI for the US market,” he says.

Pentamaster anticipates that US manufacturers may seek Malaysian and other non-Chinese suppliers to avoid Chinese restrictions, potentially benefiting local exporters.

“The new policy could indirectly benefit us, as US semiconductor manufacturers may seek more non-Chinese equipment suppliers due to restrictions on Chinese semiconductor equipment entering the US, creating more opportunities for Malaysian-based companies like Pentamaster,” Chuah explains.

QES’ Chew highlights that if the tariff is applied selectively to Malaysian ATE makers, his clients could turn to suppliers in Singapore, Taiwan, South Korea or Japan, while Chinese suppliers remain off-limits due to the US Entity List.

“So far, we have not been requested by US clients to do pricing adjustments or shift sourcing as I think most of them are in a wait-and-see mindset for now,” he says.

Nevertheless, these industry captains are taking proactive measures to mitigate potential risks. ViTrox is expanding globally, investing in research & development (R&D), and implementing artificial intelligence (AI) and process automation.

“We have no control over the tariff and, hence, our focus and efforts will be on strengthening our products and services around the world, especially in the high-growth regions and markets, investing aggressively in R&D and talent development, and relentlessly improving our productivity via AI adoption and process automation,” Chu says.

Pentamaster is leveraging Malaysia’s advantage over Chinese suppliers while exploring opportunities in the US and other high-growth regions.

“Being based in Malaysia, Pentamaster’s equipment shipments to the US are not subject to the same import restrictions faced by Chinese semiconductor equipment suppliers. This positions us as a more competitive and accessible partner for US chip manufacturers looking to source high-quality, lower-tariff equipment of 19%,” Chuah says.

QES has partnered with Applied Engineering Inc in San Jose, California, and is exploring the relocation of some production to the US while also eyeing markets across Asean, China, Taiwan, South Korea and Japan.

“We certainly will also look to expand our market elsewhere … Asean itself could also be a lucrative market for the back-end semiconductor segment in which we’re starting to see more advanced packaging activities coming onshore to Asean,” Chew says.

Meanwhile, JF Tech is pursuing cross-licensing and merger and acquisition (M&A) strategies to bolster its US presence.

“We have established a cross-licensing partnership with a US-based company since last year to help mitigate potential tariff risks, geopolitical tensions and related challenges. At the same time, we are also exploring M&A to further expand our market presence and strengthen local engagement in the US,” Goh says.

Still, most of them are unsure whether the proposed 100% tariff would be cumulative with the reduced 19% general tariff for Malaysian imports.

ViTrox’s Chu expects exemptions for multinational exporters. “We think there will be some kind of exemption given to MNCs that export their semiconductor chips to the US.”

QES’ Chew emphasises the complexity of implementation, suggesting that the US may offer company-specific exemptions, depending on reshoring commitments.

“The general 19% tariff for Malaysia and most Asean countries will be permanent for now. The 100% chip tariff will be treated separately and I don’t think this will be added to make it to a total of 119% … With many of the US-based semiconductor companies operating here in Malaysia, I reckon that the US government may go on a case-by-case basis depending on how much each of these US MNCs is willing to reshore to the US within a certain time frame,” he says.

JF Tech’s Goh adds that Malaysia is likely to be considered for exemptions due to the substantial presence of US companies locally. “We remain hopeful that Malaysia will be considered for tariff exemptions, given the substantial presence of American semiconductor companies operating in the country.

“In our view, continuing the current practice of applying HS (harmonised system) code classifications to exempt specific semiconductor products from tariffs remains the most practical and effective approach for exporters to the US,” he says.

Finally, the economic stakes are high. A semiconductor industry veteran warns that Malaysia’s trade surplus relies heavily on semiconductor exports, which account for roughly 40% of total exports. Any broad tariffs could quickly turn the current surplus into a deficit.

“If a trade deficit occurs, we will be in trouble. Malaysia’s economic strength lies in its trade surplus since 1997. An imposition of tariff on semiconductors, not to mention pharmaceuticals and rubber gloves, will definitely narrow our trade surplus. In the worst-case scenario, Malaysia may end up with a trade deficit, which will be very bad,” the veteran says.

While the 100% US chip tariff threat poses clear risks, the reactions from Malaysian tech industry leaders suggest that the policy may be less of a uniform threat and more of a potential driver of strategic opportunities.

Companies providing ATE, inspection systems and other semiconductor manufacturing solutions could still see stronger demand even if production shifts to the US, especially if they can maintain cost competitiveness and diversify into high-growth regions.

For Malaysian firms, the tariff highlights the importance of market diversification, R&D investment and strategic international partnerships.

Whether Trump’s threatened tariff becomes a debilitating risk, a non-event or an avenue for new opportunities for Malaysia may depend on how the country’s semiconductor companies adapt — leveraging technological capabilities, cost advantages and global networks to navigate what remains a volatile international trade landscape. 

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