Reduced 19pc US tariff fuels hope

New Straits Times

5 days ago

KUALA LUMPUR: The United States has lowered its tariffs on imports from Malaysia to 19 per cent, bringing a wave of relief to the country's export-heavy industries and the local stock market.
The new rate — a reduction from the original 25 per cent — is on a par with regional neighbours such as Indonesia, the Philippines, Thailand and Cambodia.
The White House issued a presidential order dated July 31, outlining broader changes to the US Reciprocal Tariff framework under Executive Order 14257.
It saw sweeping revision to the "liberation day" tariffs announced by President Donald Trump in April, reducing or slightly increasing rates on US trading partners.
The April announcement saw Malaysia facing a 24 per cent tariff, adjusted to 25 per cent in July, before being reduced to 19 per cent effective Aug 8. This sits above the global baseline of 10 per cent.
Industry players welcomed the lower rate, saying it reflects the result of constructive dialogue and engagement between the Malaysian and US governments.
The cut may seem modest but it marks a significant boost for Malaysian exporters navigating increasingly competitive and cost-sensitive global supply chains, they added.
At Bursa Malaysia, the news prompted a positive market reaction.
The stock exchange's benchmark index FTSE Bursa Malaysia KLCI (FBM KLCI) saw an immediate rise as investors quickly priced in the positive impact on Malaysian exporters, particularly in sectors such as semiconductor, palm oil and rubber products.
The key index rose 1.33 per cent, gaining 20.10 points to close at 1,533.35, up from Thursday's close of 1,513.25.
Following the tariff clarity, the FBM KLCI is expected to trade higher next week, driven by clearer investor outlook.
Enhancing Competitiveness
While it is still too early to assess the full extent of the impact, several export-oriented industries may benefit from improved competitiveness and increased demand.
Federation of Malaysian Manufacturers (FMM) president Tan Sri Soh Thian Lai said the tariff cut enhances the cost competitiveness of Malaysian-manufactured goods in the US market and reflects improved bilateral trade relations.
He commended Prime Minister Datuk Seri Anwar Ibrahim's direct engagement with US President Donald Trump as well as the Investment, Trade and Industry Ministry and other relevant agencies for their continued efforts in advocating for the interests of Malaysian industry on the international stage.
Malaysian Furniture Council president Desmond Tan said the tariff reduction brings Malaysia's treatment more in line with that of neighbouring Asean nations, helping to preserve its relevance within the regional supply chain.
"Hopefully these latest tariffs can reduce uncertainty. However, exporters will still need to adapt to a higher-cost trade environment and continued support from the government remains valuable," Tan told the New Straits Times.
Trade talks between the Malaysian and US governments began on May 6 and concluded on July 31, involving multiple platforms of engagement, according to the Investment, Trade and Industry Ministry.
The US is Malaysia's largest export market, with trade valued at RM198.65 billion and its largest source of foreign direct investment, with RM32.82 billion in approved investments recorded in 2024.
Underlying Risks
While the 19 per cent tariff is "less damaging" than the initially proposed 25 per cent, some industry specialists said it still represents a hurdle that will weigh on Malaysia's exports in the global market.
Moomoo Malaysia head of dealing Ken Low said the tariff easing is a short-term relief as there remains underlying risks that investors and exporters must navigate in the coming months.
"While the tariff reduction is a positive development for Malay-sia's export sectors, it is far from a comprehensive solution," he said.
For exporters, particularly in industries like semiconductor, palm oil and medical devices, the 19 per cent tariff could still pressure margins and profitability, Low said.
Companies will likely face higher costs for their goods entering the US market, with potential price hikes or margin erosion.
Additionally, supply chain disruptions caused by tariffs could delay shipments and reduce overall demand.
In the glove sector, Malaysia — which is a major glove producer and exporter — no longer holds a rate advantage over Thailand, Indonesia or Cambodia.
But the country's 19 per cent tariff is still lower than Vietnam's 20 per cent and China's 30 per cent, offering marginal competitiveness in the US market, according to CIMB Securities.
In 2024, Malaysia held the largest share (about 45 per cent) of the global rubber glove market, followed by China (28 per cent) and Vietnam (10 per cent).
CIMB Securities expects some incremental shift in the US glove orders to Malaysia, but higher tariffs will still increase US buyers' cost base, which may limit restocking or lead to leaner inventories.