KUALA LUMPUR (March 31): More than half of the firms engaged by Bank Negara Malaysia (BNM) eye diversification to weather US tariffs in 2025, according to the central bank's latest Economic and Monetary Review.
"To cope with the adverse impact of US tariffs, half of the firms considered venturing into a new market or pivoting to new product lines in niche segments with higher profit margins (see chart).
"Nonetheless, these firms acknowledged the potential challenges to pivot in the immediate term, including difficulty in securing new, long-term non-US clients," read the report.
The findings were based on field interviews and industrial engagements with 37 export-related firms conducted between March and August 2025.
Other responses included cost-saving measures (30%), supply chain adjustments (24%), as well as reducing headcount or shutting down production lines (24%).
Some firms also indicated plans to reduce or delay investments (16%).
BNM said it had conducted periodic industrial engagements with export-oriented firms in Malaysia to monitor the impact of US tariffs on Malaysia’s exports amid several tariff policy changes throughout 2025. (see chart)
Initially, Malaysian exporters were slapped with a 24% reciprocal tariff for their exports to the US in April 2025. A blanket tariff of 10% was later imposed during the 90-day consultation period until July, before a final tariff rate of 19% was set thereafter.
While the share of firms expecting adverse impacts remained elevated during earlier phases of tariff adjustments, sentiment improved after Malaysia’s tariff rate was finalised at 19%, broadly in line with regional peers.
“Once the tariff rate for Malaysia’s goods exports to the US was finalised at 19%, fewer firms anticipated negative impacts (Phase 3a) amid greater policy clarity,” BNM said.
“Firms also expressed relief that the tariff rate was broadly similar to regional developing economies, providing a relatively level-playing field with competitors in Southeast Asia,” it added.
More US customers who were initially hesitant have resumed orders as firms adjusted to the new tariff environment and completed the negotiation of new orders, while some Malaysian exporters, particularly in the electrical and electronics sector, benefited from order transfers and relocation of production into Malaysia.
A notable share of firms remained unaffected by US tariffs as their products, such as semiconductors and generic pharmaceuticals, were exempted or had limited direct exposure to the US market, said BNM.
However, BNM noted that negative impacts from the US tariffs persisted across several sectors. Firms in primary-related industries faced intensified competition in non-US markets, exacerbated by the availability of cost-competitive goods due to excess industrial production capacity in China.
BNM also named consumer-oriented exporters, including processed food, furniture and consumer electronics segments, as being adversely affected by softer final demand from the US amid higher tariff-induced end-consumer prices.
The tariff also weighed on revenue growth outlook, particularly among those unable to pass on higher costs to customers in the US and those already operating at thin profit margins. This could potentially lead to a decline in orders if clients were unable to absorb the cost of tariffs.