Indirect Tax Alert
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Issue No. 5/2025 | 3 April 2025
Navigating New Tariff Challenges: Implications for Malaysia's Trade with the US
The recent announcement of increased tariff rates by the United States (US) has set a complex landscape for Malaysia, especially as part of the so-called 'Dirty 15' nations. With significant economic impacts anticipated, it is imperative for us to understand the nuances of these changes and their cascading effects on trade, compliance, and strategic planning.
Effective from 9 April 2025, a 24% reciprocal tariff will be levied on Malaysian goods import into the US. Before this the baseline tariff was 10% which begins on 5 April 2025. This presents a considerable barrier for trade, particularly given Malaysia's USD25 billion trade deficits with the US in 2024.
The electronics and semiconductor sectors, key pillars of Malaysian exports contributing USD16.2 billion, will be notably affected. The increased tariffs are expected to elevate import costs, disrupt supply chains and impact profit margins. These dynamics could potentially stunt Malaysia's gross domestic product (GDP) growth, highlighting the need for strategic cushioning against these economic headwinds.
Considering these developments, staying abreast of tariff updates and ensuring compliance is critical. Malaysian companies must diligently classify and value their goods to avoid breaches under the Fraud Claims Act, with non-compliance leading to hefty penalties. Proactively engaging in binding tariff classification can mitigate disputes at US entry points, ensuring smoother trade operations.
We are of the view that the following strategic responses and mitigation measures may be used:
- Negotiations and Contractual Adjustments: Businesses should consider negotiating with US partners to absorb parts of these costs and incorporate tariff escalation clauses in contracts to distribute the financial burden.
- Exploration of Exemptions: Malaysia could pursue negotiation channels for tariff exemptions as it represents a potential avenue for relief although it is uncertain that it can be successful.
- ASEAN Collaboration and Diversification: Malaysia could leverage on its position as the Association of Southeast Asian Nations (ASEAN) chair to amplify bargaining power through a unified regional response. Additionally, supply chain diversification through initiatives like the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) can open alternative markets, reducing dependency on US trade.
Conclusion
As the deadline for new tariffs looms, it is crucial for Malaysian trade stakeholders to adapt swiftly and strategically. Thorough understanding and proactive management of these tariffs can help mitigate their adverse effects, ensuring resilience and sustained growth amidst evolving global trade dynamics.
If you would like to have more detailed insights and bespoke advice for your business, please do not hesitate to contact us and we would be happy to assist you.
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