KUALA LUMPUR (Feb 26): Malaysia remains on a “level playing field” with its Asean peers despite the tariff uncertainty from the US, on its structural advantage as a China+1 beneficiary and the growth in artificial intelligence, according to HSBC Global Research.

Whether tariffs ultimately settle at 10%, 15% or 19%, Malaysia’s structural advantage as a “China+1” beneficiary remains intact, even though the tariff differential vis-à-vis China has narrowed slightly following the recent US Supreme Court ruling, the bank-backed firm said. 

“Not to mention that Malaysia also benefits from riding the AI wave, though the potential Section 232 [of the Trade Expansion Act of 1962] on semiconductors remains a ‘Sword of Damocles’. Still, it is not only a concern for Malaysia but also for most of Asia,” HSBC said in a note.

Less than a week into the Year of the Horse, global markets were shaken after the US Supreme Court ruled tariffs under the International Emergency Economic Powers Act (IEEPA) unconstitutional. The US responded with a global 10% tariff under Section 122, possibly rising to 15%, valid for 150 days unless Congress extends it.

Malaysia had signed a Reciprocal Trade (ART) deal with the US in October 2025, securing a 19% tariff. The deal however has not been ratified. After the ruling, effective tariffs could drop to 10%–15%, raising questions about Malaysia’s obligations under the ART.

The US action has raised calls to review Malaysia’s trade agreement. Prime Minister Datuk Seri Anwar Ibrahim said Malaysia will take time to decide, monitoring other countries’ responses and the US Congress. Uncertainty remains over Malaysia’s obligations, especially after US President Donald Trump urged countries with trade deals to “honour the agreement”.

HSBC expects Bank Negara Malaysia to keep the overnight policy rate (OPR) at 2.75% at its March 5 meeting, joining at least four other economists tracked by Bloomberg, expecting no change.

While the rate decision itself appears straightforward, HSBC said it would be “interesting” to see whether BNM subtly tweaks its assessment of Malaysia’s growth outlook amid heightened global trade uncertainty.

“In addition to growth, we will also watch whether BNM will add a line or two, or even a paragraph, to express its views on MYR strength,” the bank added. The Malaysian ringgit (MYR) has appreciated more than 4% against the US dollar year-to-date, and roughly 15% since end-2024 on a longer-term comparison.

"Despite periodic concerns on the impact on Malaysia’s exports, BNM seems comfortable with the MYR and has not voiced any concerns," HSBC noted.