Malaysia's export-oriented businesses fret as deadline for US tariff deal draws near

Straits Times

18-07-2025

– As Malaysian trade negotiators race against the clock to seal a deal that could reduce the 25 per cent Trump administration tariffs before the Aug 1 deadline, the business community, especially those in export-oriented sectors, continues to grapple with uncertainty of the American levies .
Given the economy is heavily reliant on exports – with export figures at RM1.5 trillion (S$460 million) in 2024 – local manufacturers such as those in the electrical and electronic and furniture sectors are particularly worried about US President Donald Trump's threat to impose higher tariffs on 'transshipped goods'.
This is the Trump administration's attempt to curb the practice of rerouting Chinese products through a third country before they are exported to the US in order to disguise their true origin and evade US duties.
This common practice is legal in global supply chains under regulations issued by individual countries. But it can and has been abused to evade duties.
Washington had earlier said it would impose an unspecified additional levy on transshipment goods via Malaysia . It has not yet defined what percentage of Chinese inputs would classify goods as transshipment.
The threat of US enforcement actions that target China-based supply chains will weigh down the competitiveness of Malaysia's exports as the country is a regional manufacturing hub and is deeply integrated with Chinese intermediate goods, said Mr Soh Thian Lai, president of the Federation of Malaysian Manufacturing.
An intermediate good is a product (for example, steel) used in the production of a finished or final good (a stainless steel wok) . Although there are no available figures for intermediate goods imported from China, Malaysia recorded imports of intermediate goods totalling RM748.9 billion in 2024, representing a 74 per cent increase since 2020.
Separately, Malaysia imported RM296.5 billion worth of goods from China in 2024 , a 72 per cent increase from 2020.
Tan Sri Soh said that in recent years, global supply chains have shifted or expanded out of China. This has made the regional value chains all the more complex, and will make decoupling from China difficult.
Mr Soh said Malaysian manufacturers in sectors such as electronics, medical devices and engineered parts, who are locked into long-term contracts and operate on tight margins, will be especially hurt by the upcoming 25 per cent tariff imposed by the US.
Malaysia's electrical and electronic sector is also heavily reliant on sourcing silicon from China. But Mr Keat Yap of global management consultancy Kearney is of the belief that these Malaysia-made goods should not be categorised as transshipment products.
In 2024, China accounted for 80 per cent of global silico n production.
'Even if the silicon comes from China, it cannot function as a chip unless it is diced into pieces, assembled with electrical connectivity, encapsulated for protection against elements, and then tested... In reality, there is no transshipment but significant value additions in Malaysia,' Mr Yap told ST.
Malaysia ships a significant portion of its electrical and electronic sector products to the US. In 2024, such goods, including semiconductor and telecommunication equipment, made up 60 per cent of its exports to the US and were valued at RM119.86 billion.
To address Washington's concerns regarding transshipments and increasing scrutiny over allegedly fraudulent origin claims of Malaysian products , the Ministry of Investment, Trade and Industry (Miti) in May
revoked the authority of
other organisations like local business councils, chambers or association , to issue non-preferential certificates of origin (NPCOs) for US-bound cargo.
Industry sources whom ST spoke to in May , said there have been cases of Chinese manufacturers using Malaysia as a transshipment hub, allegedly going as far as to falsify certificates of origin in an effort to bypass US tariffs.
The ministry is now the sole body authorised to issue NPCOs. These documents are used to certify the origin of goods for international shipments, helping to fulfil customs or trade requirements in the destination country.
Muar Furniture Association chairman Steve Ong welcomed Miti's stricter move on NPCOs, saying that it would protect Malaysia's wooden furniture export industry, which is valued at RM9.89 billion in 2024 , half of which was shipped to the US.
'It's now harder for exporters to obtain fake certificates of origin for transshipment,' he told ST. 'However, Malaysia still faces higher tariffs compared with neighbours like Indonesia, which enjoys a
19 per cent rate, so there's a risk transshipment could shift there instead.'
Miti on July 14 also tightened the oversight of the movement high-end chips from the US by imposing a
strategic trade permit requirement, a move analysts say is part of the government's negotiation tactic to lower the tariff rate.
Regionally, the US levied a tariff of 36 per cent against
Thailand's exports , and 20 per cent against the Philippines, and 10 per cent on Singapore in a July 18 announcement. Vietnam secured a deal for a 20 per cent tariff rate and 40 per cent rate on goods deemed to be transshipped.
Earlier in May, the US Department of Justice's (DoJ) criminal division issued a memo detailing the ' threats to the US economy' where it listed 'tariff evasion ' as a priority area it must tackle as part of combatting white-collar crime. Washington later in June reached a trade deal with China , which saw duties on Chinese goods cut to around 55 per cent – down sharply from a previous 145 per cent.
AmBank Group Chief Economist Mr Firdaos Rosli said that comparing tariff rates between countries should not be the main focus for Malaysia , given the broader uncertainty posed by Mr Trump's trade policies.
' Although the US is a major global consumer market, the world is bigger ... Perhaps we should focus more on trading among ourselves rather than relying so heavily on a single nation,' he said.
A former US DOJ prosecutor turned consultant Mr Artie McConnell said the lack of a common definition and the high burden of proof by prosecution to show that transshipping has occurred could hinder Mr Trump's efforts to criminalise the practice .
'When you have, say, a chemical mixture or a high-end electronic item, and there's no precedent under the (World Trade Organisation's) Harmonised Tariff Schedule (HTS), classifying the item can be very difficult,' Mr McConnell, now a partner at US lawfirm BakerHostetler told a forum on July 15.
He advised firms to implement basic compliance programmes, such as having essential paperwork in order. With these processes in place, he said 'you've already completed 90 per cent of the work' to ready oneself for the new era of tariffs.