Malaysian semiconductors under US watchlist despite temporary relief

New Straits Times

3 days ago

KUALA LUMPUR: Malaysia's semiconductor sector, while currently exempt from new United States (US) retaliatory tariffs, remains under close scrutiny and could still face future action under an ongoing investigation by the US government.
Investment, Trade and Industry Minister Tengku Datuk Seri Zafrul Abdul Aziz said the sector is being reviewed under Section 232 of the US Trade Expansion Act of 1962.
He added that any escalation could have serious repercussions, including potential job losses affecting up to 100,000 workers, particularly in Penang and Kedah.
"We must remain vigilant and prepared for any potential imposition of further tariffs on the semiconductor industry," he told Parliament.
The US is Malaysia's largest export market with RM198.65 billion in exports and RM32.82 billion in foreign direct investments recorded in 2024.
Tengku Zafrul said any shift in US trade policy would carry significant risks for Malaysia's economy.
"For instance, up to 100,000 Malaysian workers could be at risk of losing their jobs if electrical and electronic goods can no longer be exported to the US due to high tariffs," he said.
In tandem with efforts to preserve market access, Malaysia recently made several concessions in digital trade negotiations under Section 3 of the talks with the US.
Tengku Zafrul said these include Malaysia's agreement not to implement any Digital Service Tax (DST) that discriminates against American companies.
"I would like to emphasise that Malaysia is a country that implements DST and similar tax policies based on non-discriminatory principles," he said.
Meanwhile, Tengku Zafrul said Malaysia has also agreed to remove the previous requirement that US-based social media and cloud service providers contribute six per cent of their Malaysian revenue to the Universal Service Provision (USP) Fund.
In addition, he said the government will permanently abolish or suspend a directive requiring all Domain Name System (DNS) traffic to be rerouted through local DNS services.
However, Tengku Zafrul emphasised that Malaysia drew a firm line on several national interests and did not agree to all demands.
He said that Malaysia firmly maintains that cloud service providers as well as social media platforms remain subject to criminal liability under Malaysian law.
At the same time, he said the Malaysian government retains the right to request access to or instruct companies to transfer source codes of software used in critical infrastructure, government procurement, and the financial services, licensing, and judicial sectors.
"Malaysia underscores the government's transparent and balanced commitment in two areas.
"The first is the commitment to protect the intellectual property of companies from forced technology transfers, to promote innovation, and to ensure fair competition in international markets.
"The second is to safeguard the nation's sovereignty, security, and economic stability," he added.