Tariff Negotiations

Malaysia is negotiating with the US to lower President Trump’s planned tariffs to around 20%, aiming for a rate similar to Indonesia and Vietnam.

The current tariff rate of 25% will take effect on August 1, 2025, if no deal is reached.

US Demands and Malaysia’s Resistance

The US wants:

Extended tax breaks for American EVs in Malaysia.

Reduction of foreign ownership limits in the power and financial sectors.

Cuts to subsidies for local fishermen.

Malaysia is resisting these demands, especially those tied to sensitive national policies and voter interests.

National Policies as a "Red Line"

PM Anwar Ibrahim insists Malaysia will not compromise on:

Bumiputera (Malays and indigenous) preferential policies.

Domestic subsidies (e.g., for fishermen).

Semiconductor & AI Chip Smuggling Concerns

Malaysia has addressed US concerns about high-performance semiconductor smuggling to China:

Now requires permits for exporting US-made AI chips.

Companies must report potential misuse of such chips.

The US recently allowed Nvidia’s H20 AI chips to resume shipments to China.

EV Market Context

Malaysia’s EV tax exemption ends in December 2025, and the government is reluctant to extend it for US-made EVs.

Chinese brands like BYD dominate Malaysia’s EV market, accounting for ~50% of new EV registrations in 1H 2025.

Trade Stakes

Malaysia’s GDP growth forecast (4.5%–5.5%) could be revised downward depending on tariff outcomes.

The US goods trade deficit with Malaysia was $24.8 billion in 2024.

Based on the current dynamics of U.S. trade policy under Trump 2.0, Malaysia’s counterproposal of a 20% tariff might be partially acceptable but not guaranteed, because:

1. U.S. Negotiation Style under Trump
Trump’s administration often starts with maximum demands (e.g., 25% tariffs) to push for broader concessions (like EV tax breaks, foreign ownership liberalization, etc.).

A reduction to 20% could be viewed as a "win" for the U.S. if Malaysia offers something else in return, but Washington will expect meaningful concessions, not just a tariff cut.

2. U.S. Leverage on Semiconductors
The U.S. sees Malaysia as a critical hub for semiconductor packaging and AI chip exports.

Since Washington is focused on preventing AI chips from reaching China, Malaysia’s stricter export controls may give it some bargaining power.

However, the U.S. may still insist on longer-term commitments, especially regarding tech supply chain security.

3. U.S. EV Market Interests Are Limited
U.S. automakers (like Tesla) have a very small EV presence in Malaysia, so Trump’s push for EV tax breaks is less about Malaysia’s domestic market and more about setting a precedent for U.S. goods.

Malaysia’s refusal to extend EV tax breaks might not be a dealbreaker for the U.S., especially since the U.S. itself is ending its EV tax credit soon.

4. Politically Sensitive Demands
Demands on fisheries subsidies and foreign ownership in financial/power sectors are domestic red lines for Malaysia.

The U.S. may soften its stance if semiconductor controls and tariff levels are settled because semiconductors are a priority.

5. Regional Benchmark
Vietnam accepted a 20% tariff deal in July 2025 (although with some friction).
If the U.S. agreed to 20% with Vietnam, accepting a similar deal with Malaysia is plausible, as long as the U.S. doesn’t perceive Malaysia as "too resistant" to other demands.

1. Best-Case Scenario (20% Tariff Deal Achieved)
Assumptions:

U.S. agrees to 20% tariff (aligned with Vietnam’s level).

Malaysia maintains sovereignty on EV tax policy and Bumiputera ownership rules.

Semiconductor smuggling concerns are resolved with Malaysia’s export controls.

No major concessions on fishing subsidies or foreign ownership.

Impact on Malaysia:

Economic Growth: GDP impact minimal; Malaysia can keep its 4.5–5.5% growth target.

Exports: Electronics and semiconductor exports remain competitive due to lower tariff impact.

Investor Confidence: Improves due to stable trade terms with the U.S.

Winners (Stocks/Sectors):

Semiconductor & Tech: Inari, MPI, NationGate, Frontken, D&O (less risk of trade disruptions).

EMS/Exporters: Cape EMS, VS Industry, SKP Resources (tariffs less punitive).

Ports & Logistics: Westports, MMC Corp (stable U.S. trade flows).

Losers:

Minimal, except for EV players that wanted U.S. EV imports (Tesla-related ventures), which see no extended tax benefits.

2. Base-Case Scenario (20–25% Compromise or Temporary Extension)
Assumptions:

U.S. and Malaysia agree on 22–23% tariff or a temporary extension of the current rate while talks continue.

Malaysia offers limited concessions (e.g., slight flexibility in EV tax period, but no structural changes).

Semiconductor controls satisfy U.S. concerns, but Washington pushes for ongoing monitoring.

Impact on Malaysia:

Economic Growth: Slight downgrade to ~4.3–4.8% due to mild export headwinds.

Investor Sentiment: Neutral but cautious; uncertainty persists.

Winners:

Tech firms with strong non-U.S. markets (e.g., D&O, Notion VTec, Globetronics) remain resilient.

Domestic-focused sectors (construction, property, consumer) less affected.

Losers:

Export-heavy EMS players (e.g., NationGate, VS Industry) face moderate pressure from slightly higher tariffs.

EV industry sees limited growth from U.S. imports.

3. Worst-Case Scenario (25% Tariff + No Deal)
Assumptions:

Trump enforces full 25% tariff from Aug 1, 2025.

Malaysia refuses major U.S. demands on EVs, foreign ownership, and subsidies.

U.S. pressure on AI chip transshipments escalates, possibly affecting licensing for U.S. tech exports to Malaysia.

Impact on Malaysia:

Economic Growth: Potential downgrade to 3.8–4.3% due to weaker exports and supply chain disruptions.

Ringgit Weakness: MYR could depreciate further if trade deficit widens.

FDI Risk: Some U.S.-linked investments might slow down.

Winners:

Domestic beneficiaries (fishing, local EV makers like Proton-DRB, energy players) due to protective stance.

Losers:

Exporters: NationGate, Inari, MPI, D&O, Cape EMS—margin pressures from tariffs and supply chain shifts.

Logistics and ports due to reduced U.S. trade flows.

Market Sentiment: FBM KLCI could see correction in tech/export-heavy counters.

Conclusion
Best-case (20% tariff) is achievable if Malaysia’s semiconductor compliance satisfies Washington.

Base-case (22–23%) is more probable if Malaysia refuses major EV/ownership concessions.

Worst-case (25%) could hit export-heavy stocks hardest, particularly NationGate, Inari, and MPI, as they have notable U.S. exposure.