- The US considers tariffs on semiconductors under Section 232, posing risks to Malaysia’s chip supply chain.
- MSIA urges proactive policies, talent development, and supply chain flexibility.
- E&E exports rose 20% in early 2025, but demand vulnerability remains.
As the United States continues to explore the possibility of tariffs on semiconductors under Section 232 of the Trade Expansion Act of 1962, Malaysia is encouraged to strengthen its semiconductor ecosystem to protect against potential demand disruptions.
Despite the absence of officially implemented tariffs, the Malaysia Semiconductor Industry Association (MSIA) cautioned that downstream effects from such an action could impact local supply chains, especially in sectors with heavy manufacturing.
"If US tariffs are imposed arising from the investigation, manufacturing-intensive semiconductor segments will likely face the most immediate pressure,” MSIA executive director Andrew Chan Yik Hong told SunBiz in a written response.
Chan emphasized that Malaysia should implement proactive policy measures to sustain its global competitiveness if geopolitical tensions escalate.
“Malaysia must continue to engage constructively with U.S. trade counterparts to ensure we remain a trusted, neutral and strategic partner in the global chip ecosystem," he said.
“But more importantly, we must double down on what we can control."
Regardless of increasing geopolitical challenges, Malaysia's electrical and electronics (E&E) industry, with semiconductors being a key element, continues to be strong.
Between January and May 2025, E&E exports jumped by 20% compared to the previous year, significantly surpassing the national export growth rate of 5.5% for that period.
"This underscores the resilience and competitiveness of our semiconductor ecosystem,” Chan noted.
However, he cautioned that the sector's exposure to global demand fluctuations remains a critical vulnerability.
A significant change in US trade policy might cause ripple effects throughout Malaysia's electronics manufacturing, testing, and packaging sectors, which are vital components of its export economy.
"Semiconductors are the building blocks of modern life. A slowdown in global demand, whether due to tariffs or macroeconomic uncertainty, would inevitably affect Malaysia's semiconductor output," Chan said.
He highlighted three key contingency sectors where Malaysia should invest to shield itself from future disruptions and establish itself as a long-term chip leader: development, ecosystem resilience, and supply chain flexibility.
"We must develop world-class engineers, operators and innovators through deep industry- academic collaboration and remain the most attractive hub for semiconductor design, manufacturing and advanced packaging in the region.
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"Malaysia must also expand and diversify upstream and downstream capabilities to absorb global shocks more effectively," Chan said.
Although the country does not possess large-scale front-end fabrication capabilities, its robust presence in testing, assembly, and advanced packaging establishes it as an essential player in the semiconductor ecosystem of the Asia-Pacific region.
In April, the US initiated a Section 232 inquiry to determine if semiconductor imports represent a national security risk, which could lead to tariffs. Although tariffs have not been implemented yet, the action indicates increasing protectionism in the context of geopolitical conflicts.
Malaysia, accounting for 13% of the worldwide chip packaging and testing sector, may experience ripple effects if there is a change in global demand. Malaysia, as a major player in the back-end and midstream supply chain, has witnessed more than RM319 billion in E&E investments since 2021. The nation is establishing itself as a robust, strategic semiconductor center amid global trade shifts.