Trump's Tariffs & Their Impact On Asian Trade

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In early February 2025, the United States (US) announced a series of additional tariffs on a number of nations including Malaysia. This measure was purportedly intended to counteract the US trade deficits with the rest of the world. 

Malaysia was subjected to an additional 24% tariff on a range of Malaysian imports such as semiconductors, solar panels, rubber gloves, palm oil derivatives and so forth. 

In light of a subsequent announcement on 9.4.2025, the imposition of the tariffs was suspended for 90 days. This 90-day period ends on 8.7.2025.

Nevertheless, in another announcement on 2.4.2025, the US stated that a baseline tariff of 10% remains applicable effective from 5.4.2025.  

Computation Of Tariff

Generally, a tariff is a form of tax imposed by a government on imported goods. The steps to determine the amount of tariff are summarised as follows: 

(i) To identify the precise HS code of the products or goods which would determine the tariff classification; and

(ii) To determine the applicable tariff rate based on country of origin.

The relevant formula to compute tariffs is statedbelow: 

Based on the Executive Order released by the White House, the tariffs will not be applied to all goods ascertain goods are partially and fully exempted. 

• Fully exempted goods

All future goods that are subject to Section 232 of the Trade Expansion Act 1962; and

All goods stated in Annex II released by the White House that include but are not limited to:

a. Steel

b. Aluminium

c. Automobiles

d. Copper

e. Pharmaceuticals

f. Semiconductors

g. Lumber articles

h. Certain critical minerals 

i. Energy-related products 

• Partially exempted goods

Goods with at least 20% of US content, the designated tariffs will only be applied on the value of the non-US content. US content refers to the value of an article attributable to the components produced entirely or substantially transformed in the US.

Potential Impact To Malaysia

Early this year, the Ministry of Investment, Trade and Industry (MITI) shared that Malaysia recorded a total trade value of RM2.879 trillion in 2024, with exports accounting for RM1.51 trillion. The US ranked as Malaysia’s second-largest export destination, with total exports valued at RM198.65 billion. These exports primarily comprised electrical and electronic products, machinery, equipment and parts, as well as rubber-based goods.

Higher tariffs will increase the cost of Malaysian goods in the US market, making them less competitive and potentially leading to reduced demand and lower sales. This would ultimately impact overall business performance negatively.

• Malaysia’s response

As part of the countermeasure, the Government has committed to provide additional support up to RM1.5 billion for small and medium-sized enterprises (SMEs) affected by the US tariff measures:

• The allocation under the Business Financing Guarantee Scheme will be raised to assist SMEs in securing loans from commercial banks; and

• An additional RM500 million in soft loans will be made available through development financial institutions to directly support affected SME entrepreneurs.

The Ministry of Finance (MOF) recently announced a temporary postponement of the implementation of the expanded scope of the Sales and Service Tax (SST), which was originally scheduled to take effect on 1.5.2025. This decision came in light of the recent announcement by the US to impose additional tariffs on Malaysian exports to mitigate financial pressures on businesses.

Industry groups welcomed the move, urging the government to defer SST expansion further as they view that the SST expansion would further strain industries grappling with business challenges due to the new US tariffs. 

Ongoing discussions between the MOF and industry stakeholders are crucial to ensure that any future implementation of the SST expansion considers the prevailing economic conditions and the capacity of businesses to adapt. Such collaborative efforts are essential to formulate tax policies that bolster economic resilience.

•Moving forward 

Malaysia has opted for diplomatic engagement over retaliation. An ongoing discussion has been held between MITI and the US Government to uphold the spirit of free and fair trade. Recently, the MITI stated that the US has agreed to reduce its proposed tariff on Malaysian exports to a baseline tariff rate of 10%.

As Malaysia navigates the implications of the tariffs, businesses operating in or exporting to the US must adopt forward-looking, strategic responses. The current tariff landscape, especially the imposition of a 24% tariff suspended to 10% temporarily necessitates a proactive reassessment of trade, supply chain and tax strategies.

Legal And Contractual Risk Management

(i) Businesses should evaluate trade agreements with US buyers for exposure to tariff-related cost increases and assess whether force majeure, hardship or price adjustment clauses apply.

(ii) When negotiating new agreements, businesses should expressly allocate risks arising from changes in tariff regimes, ensuring there is a clear mechanism for renegotiating prices or apportioning increased costs.

(iii) Ensure that contracts contain clear dispute resolution clauses, including arbitration venues and governing law, especially where international counterparties are involved. This ensures efficient and neutral resolution of disagreements arising from tariff-related performance issues.

(iv) When negotiating new agreements, businesses should expressly allocate risks arising from changes in tariff regimes, ensuring there is a clear mechanism for renegotiating prices or apportioning increased costs.

Customs And Compliance Optimisation

(i) Re-evaluating HS codes and product descriptions to ensure the most favourable and accurate tariff application.

(ii) Aligning customs valuation with transfer pricing policies to reduce audit risks and ensure compliance with both US and Malaysian tax regulations.

(iii) As MITI is now the sole body to issue the certificates of origin to the US following an announcement made on 5.5.2025, businesses must ensure documentation integrity and prevent misuse (e.g. third-country transhipment).

Supply Chain Diversification And Resilience

(i) Shifting parts of manufacturing or assembly processes to countries with lower US tariffs while maintaining Malaysia as a hub for high-value operations.

(ii) Establish a flexible production model that allows components or subassemblies to be shifted across ASEAN or FTA-partner countries depending on tariff developments, without significant retooling costs.

(iii) For goods assembled in Malaysia but originating elsewhere, assess whether rerouting or altering assembly points might enable a more favourablecountry-of-origin classification under US customs rules.

Government Relations And Strategic Advocacy

(i) Engage with business chambers and industry associations that are actively involved in dialogue with MITI and MOF to influence policymaking and ensure industry voices are reflected in ongoing US-Malaysia trade discussions.

(ii) Establish an internal trade policy task force or retain specialist advisors to provide timely alerts on US legislative or executive actions.

Commentary - What Should The Affected Businesses Do?

The imposition of US tariffs, though partially suspended, has fundamentally altered the trade dynamics for Malaysian exporters. While the baseline 10% tariff currently in effect provides some relief compared to the earlier 24%, it still places pressure on margins, supply chains, and market competitiveness. Thus, affected businesses must act decisively and consider the following:

(i) Conduct immediate tariff impact assessments on product lines destined for the US to quantify exposure and evaluate adjustments to pricing structures as well as commercial terms.

(ii) Activate contractual review protocols to renegotiate key clauses in supplier and customer agreements that may be triggered by increased costs or supply disruptions.

(iii) Reconfigure supply chains to explore origin reclassification options, shift low-margin production to tariff-favoured countries, and enhance ASEAN regional value chains.

(iv) Invest in tax-efficient structuring and trade advisory functions, either internally or via external consultants, to monitor global tariff developments and mitigate risks.

Ultimately, while tariffs are politically driven and often unpredictable, Malaysian businesses can mitigate their effects through strategic foresight. As such,cross-disciplinary coordination between legal, tax, trade and operations teams is vital to sustaining export performance and ensuring long-term competitiveness in a rapidly shifting global trade landscape.

9 June 2025