Tariff deadline extended: Malaysia has until Aug 1 to avert 25pct duties
US President Donald Trump's decision to extend the deadline gives Malaysia a chance to recalibrate its approach and directly address Washington's concerns about the bilateral trade imbalance.
Economist Dr Geoffrey Williams said the immediate impact should be limited, as many exporters had already rushed shipments ahead of the original deadline.
"There has already been significant front-loading ahead of the deadline. So the impact is to create volatility, but overall trade for the year will average out, with most exports in the first half of 2025 and fewer in the second.
"However, the long-term effect hinges on whether a trade deal can be reached before the Aug 1 deadline. There is still some time," Williams told Business Times.
Nusantara Academy for Strategic Research senior fellow Dr Azmi Hassan agreed that Malaysia retains room to negotiate, unlike some countries that face more rigid conditions.
"There's still room to negotiate because the trade deal between Malaysia and the US is not cast in stone," he said, noting that Trump has specifically flagged Malaysia's trade surplus as a concern and outlined three conditions for Malaysia to show concrete efforts to narrow it.
"This opens up a pathway for Malaysia to respond directly to US economic concerns, rather than being locked into a rigid or politically motivated trade stance."
Hong Leong Investment Bank Bhd (HLIB) said Malaysia still has scope to push for a lower tariff within the 25-day grace period and warned that the Trump administration's plans for new sector-specific duties under Section 232 could further complicate Malaysia's trade outlook.
Possible drag on GDP
Malaysia's exports to the US make up about 7.2 per cent of gross domestic product (GDP).
With the introduction of a 25 per cent tariff and assuming a demand elasticity between 0.7 and 2.0, HLIB said the potential drag on GDP could range from 0.5 to 1.5 percentage points.
"However, given the limited timeframe for the implementation of new tariffs, elasticity may be dampened due to fewer available substitutes, which could moderate the initial impact," it said.
After the 2nd April Liberation Day announcement, HLIB had already revised down its 2025 GDP growth forecast from 4.9 per cent to 4.0 per cent, based on the assumption of a 24 per cent tariff.
"In light of the newly stated 25 per cent rate set to take effect on August 1, we are maintaining our GDP projection at 4.0 per cent for now," it said.
Malaysia remains more competitive than peers
Kenanga Research said the latest tariff rate of 25 per cent for Malaysia remains more favourable than rates imposed on regional peers including Myanmar (40 per cent), Indonesia (32 per cent), Thailand and Cambodia (36 per cent).
However, it noted that Malaysia is less competitive compared to Vietnam's 20 per cent rate for domestically produced goods.
"Nevertheless, we also highlight that Malaysia retains its advantage versus other countries such as Indonesia and Thailand.
"Depending on transhipment rates, Malaysia may retain a relative edge over Vietnam in cases involving transhipped goods, which are subject to a 40 per cent tariff," it said.
Impacted sectors
Williams noted that many of Malaysia's key export sectors, particularly semiconductors and other electronics, were excluded from the new tariff list.
As a result, he believes the brunt of the impact will fall on other areas.
"The sectors most affected will be consumer goods and intermediate industrial products — those not exempted from the duty," he said.
Meanwhile, Kenanga Research said from its observation, Malaysian tech firms appear to have stronger margin buffers relative to their Vietnam-based peers.
Bloomberg data indicates that 31 per cent of listed technology companies in Malaysia achieved EBITDA margins above 20 per cent, compared to just 12 per cent in Vietnam.
"This reflects superior operational efficiency among Malaysian players, which could help partially mitigate the impact of Malaysia's higher tariff disadvantage relative to Vietnam.
"If exporters are compelled to absorb part of the tariff burden—through lower selling prices or contract renegotiations—this could weigh on profitability, particularly for those operating at the lower end of the margin range," it said.
Malaysia should remove remaining 'nuisance tariffs'
Williams said Malaysia should adopt a pragmatic and strategic approach to mitigate the effects of the tariffs.
"Just because you remove tariffs does not mean domestic buyers will suddenly choose foreign products," he said.
Instead, he suggested that Malaysia could consider eliminating tariffs and non-tariff barriers across the board, allowing market forces to determine outcomes.
He believes by lowering its own trade barriers, Malaysia could also position itself as a fair and open trading partner while giving local consumers and businesses more flexibility in sourcing.
"US companies are not particularly popular in Malaysia at the moment, due to issues such as links with Israel. Even without tariffs, US products are often not price competitive in this market.
"So it should not be presumed that removing tariffs will flood Malaysia with US imports," he added.
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