This article first appeared in The Edge Malaysia Weekly on January 19, 2026 - January 25, 2026

FOR years, Malaysia sold itself as a safe and neutral place to assemble chips. It stayed out of great power rivalry, kept its doors open to all investors and focused on doing one thing well — testing and packaging.

That strategy is now under pressure. Semiconductors are no longer just industrial products. Chips have become strategic assets — some say semiconductors are “the new oil” in the global economy — shaped by export controls, tariffs and national security rules.

As a result, countries in the middle of the supply chain, including Malaysia, are finding it harder to stay above the geopolitical tensions.

“Malaysia retains some room to hedge, but that space is narrowing,” Professor Dr Chris Miller, author of Chip War: The Fight for the World’s Most Critical Technology, tells The Edge in an email interview.

As export controls and end-use compliance rules spread through the global semiconductor supply chains, he notes that neutrality is easier to declare than to practise. “It’s easy to talk about non-alignment but harder to actually implement when both China and the US are demanding that Malaysia make tough choices,” says Miller.

For Malaysia, the challenge is structural. The country is deeply embedded in the global semiconductor supply chain, especially in the area of outsourced semiconductor assembly and test (OSAT).

Like it or not, being the world’s sixth-largest chip exporter while commanding 13% of the global market in the semiconductor packaging, assembly and testing segment, Malaysia has been forced into an increasingly delicate balancing act between the US and China.

In fact, the two superpowers are among the top three destinations for Malaysia’s semiconductor exports, alongside Singapore. In 2024, chip shipments to the US reached US$16.2 billion, representing nearly one-fifth of total US semiconductor imports.

Meanwhile, the semiconductor industry is a major pillar of the national economy, with more than 40% of Malaysia’s exports being electrical and electronic (E&E) products, making it difficult to ignore the implications of the US-China trade war.

Published in October 2022, Miller’s Chip War is a New York Times bestseller and a winner of the Financial Times Business Book of the Year Award. The book is an epic account of the decades-long battle to control what has emerged as the world’s most critical resource — microchip technology — with the US and China increasingly in conflict.

As Washington and Beijing tighten their grip on supply chains, the room to serve both sides without friction is shrinking.

Just last week, Nvidia Corp was again caught in the tug of war between the US and China, as Chinese customs authorities reportedly barred the entry of Nvidia’s H200 artificial intelligence (AI) chips — its second most powerful chips — even as the Trump administration moved closer to allowing their sale to China.

With China reportedly now seeking to regulate how many domestic AI firms can purchase chips from foreign suppliers such as Nvidia, the episode highlights the growing anxiety and policy risk surrounding the semiconductor industry.

For Malaysia, the geopolitical tension was visible last year when Malaysia hosted both US President Donald Trump and Chinese President Xi Jinping. The optics were striking. So was the message — Southeast Asia, and Malaysia in particular, matters in the global chip race.

According to Miller, the attention reflects Malaysia’s role as a semiconductor hub in the region.

“The dual courtship by Washington and Beijing reflects Malaysia’s importance in manufacturing. Strategic attention increases leverage, but it also raises expectations, as both Xi and Trump undoubtedly made ‘asks’ of the Malaysian government,” he says.

Still, Miller argues that being courted by both sides is better than being ignored.

“It’s better to have multiple courtiers, which gives Malaysia more bargaining power than it would otherwise have,” he notes.

The risk is that higher leverage also comes with higher expectations — and, in turn, fewer neutral positions to hide behind.

That tension surfaced in May last year, when remarks by Deputy Minister of Communications Teo Nie Ching suggesting that Huawei’s Ascend chips could anchor Malaysia’s AI ambitions triggered a backlash in Washington. Speaking at the launch of the Malaysia-China Trusted Data Zone — a digital infrastructure cooperation project jointly developed by local firm Skyvast Corp and China’s Shanghai International Data Port — she said Malaysia would be the first country to deploy Huawei’s AI servers on a national scale.

The comment was immediately amplified by David Sacks, a close ally of Trump known for his outspoken views on AI and cryptocurrency, on social media. Sacks used Malaysia as an example of how China was trying to push its Huawei-related tech stack internationally.

This led the Ministry of Investment, Trade and Industry (Miti) to clarify that Malaysia had no involvement in the Huawei AI project. Teo also retracted her statement.

Following a bilateral meeting between Trump and Xi in Busan, South Korea, on Oct 30 last year, some quarters interpreted the development as a sign of easing tensions, after the world’s two most powerful leaders agreed to a one-year trade truce.

Miller, however, warns against reading this as a lasting thaw. “I don’t think we should interpret the truce of the past few months as a durable de-escalation. I think it’s a temporary pause,” he says.

Miller believes the US still wants to retain the political status quo in Asia, including the autonomy of Taiwan and the close US military alliances with Japan, South Korea, the Philippines and others.

China, meanwhile, sees that order as outdated and unfair, created when the country was still weak.

“Both Beijing and Washington distrust the other and assume the other is trying to use supply chains in general — and semiconductors in particular — as a source of technological and political advantage,” he explains.

Miller is a professor at The Fletcher School at Tufts University in the US and a non-resident senior fellow at the American Enterprise Institute, a think tank in Washington DC. He also advises businesses and asset managers at Greenmantle, a consultancy, and advises semiconductor and other technology start-ups.

Notably, the Trump administration on April 2 last year imposed a 24% reciprocal tariff on selected Malaysian exports to the US. Semiconductors were among the goods exempted. The “Liberation Day” tariff policy was supposed to come into effect on April 9, but was postponed for 90 days until July 8.

On July 7, the White House formally notified Putrajaya that a sweeping 25% tariff would be imposed on all Malaysian products entering the US effective Aug 1. Semiconductors were not specifically mentioned.

In a twist of events, the White House on July 31 announced that the reciprocal tariff on Malaysian goods would be lowered to 19%. The rate was later formalised in the Agreement on Reciprocal Trade (ART), signed between the US and Malaysia on Oct 26 during Trump’s historic visit.

As it stands, Malaysian semiconductors remain exempt from the US tariff. However, Trump has repeatedly threatened sector-specific tariffs on semiconductor imports from countries without US-based manufacturing, mentioning rates of 100% and 300% at different times.

Miller doubts the 19% tariff will represent a dramatic shift in Malaysian competitiveness, considering that most other countries in the region received a comparable rate.

“Ultimately, it’s the rate differential that matters most. In the longer run, for products entering the US market, we may see some shifting of capacity from Southeast Asia to Mexico, which is likely to face a lower long run tariff rate,” he notes.

Miller, an economics historian with a Master of Arts and Doctor of Philosophy in history from Yale University and a Bachelor of Arts in history from Harvard University, acknowledges that beyond tariffs, the US has expanded the reach of its semiconductor controls far beyond its borders.

For instance, companies using US-origin equipment, software or intellectual property can be regulated even when operating overseas. This could affect all major chip hubs in Southeast Asia.

However, Miller does not see Malaysia as being at a clear disadvantage compared with its neighbours. “I don’t think Malaysia has any specific disadvantages relative to its Southeast Asian peers.”

Instead, he says, the pressure is universal.

“The reality is that both the US [with semiconductors] and China [with minerals] and both [with outbound foreign direct investment limits, inbound FDI restrictions and other tools] will increasingly try to shape supply chains, even outside their borders,” he adds.

China’s response to these constraints has been to push hard for self-reliance — and Miller sees this as permanent.

“This is a structural realignment. China is spending vast sums and sees self-sufficiency as important not only for economic but also for geopolitical reasons. Malaysia and every other country must assume that in the long run, their access to the Chinese chip market will decline,” he warns.

That assumption has major implications for Malaysia’s industrial strategy. Policymakers have long argued that the country must move up the value chain, particularly into advanced packaging. But this window may be narrowing. As the US, Japan and Taiwan invest heavily in domestic packaging capacity, the segment is becoming more technology-driven and less reliant on low-cost labour.

“I agree that packaging is becoming more R&D- and capital-intensive. Malaysia can compete by upgrading its R&D and capitalising on its existing packaging assets to do this. Labour cost won’t be a differentiator anymore,” says Miller.

Chip design is another possible path. Malaysia has signalled its ambitions in this sector, including a US$250 million (RM1 billion), 10-year agreement with British chip architect Arm Holdings plc for semiconductor licences and know-how, with the aim of producing local chips within five to seven years.

Miller believes this is possible, but warns against spreading efforts too thin.

“I think it is certainly possible for Malaysia to play a bigger role in chip design. However, design is a very big space, so Malaysia will have to choose carefully when it considers which specific niches to specialise in,” he says.

Besides, the AI boom adds another layer of complexity. Valuations across the chip and data centre ecosystem have surged, raising fears of a bubble.

Miller sees both risk and substance. “It is certainly a risk, but I’m also impressed by the rapid revenue growth of the companies that use AI. It’s not only OpenAI and Anthropic that have seen rapid revenue growth, but many firms devising specific products for doctors, lawyers and customer service,” he says.

For Malaysia, the lesson is not to chase hype, but to build capability. In a more divided chip world, scale and neutrality offer less protection than they once did. Technology depth matters more.

“The key to differentiation is to have more advanced technology. This is the only way to defend a position in the semiconductor supply chain over the long run,” says Miller.

In the decade ahead, Malaysia’s challenge will be to turn geopolitical attention into a long-term strength — before the space to hedge narrows even further. 

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