Malaysia says removing chip tariff exemption could harm competitiveness, U.S. supply chains

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KUALA LUMPUR (Reuters) -Malaysia warned on Friday that any removal of tariff exemptions on its semiconductor exports by the United States could hurt its competitiveness and strain supply networks, according to a government report. 

President Donald Trump’s administration in August imposed a tariff of 19% on Malaysian exports to the United States, though some items including semiconductors are currently exempt pending a U.S. national security probe.

Also in August, Trump proposed to levy 100% tariff on imported chips, though he said it would not apply to companies with a manufacturing footprint in the United States or plans to build one.  

Any removal of the semiconductor exemptions “could result in repercussions, reduce competitiveness and strain sectors that are closely integrated with the U.S. supply chains,” the Malaysian government said in an economic outlook report released with its 2026 budget. Malaysia is the world’s sixth-largest exporter of semiconductors.  

Malaysia is already expecting a hit to its economy as a result of the U.S. tariffs, projecting gross domestic product growth to be lower by 0.76 percentage points, according to the report. 

It also expects imports and exports to shrink next year due in part to the tariffs, the report said. 

Malaysia in July lowered its growth forecast for 2025 to between 4% and 4.8%, from its initial estimate of 4.5% to 5.5%, citing trade and tariff uncertainties. 

It expects economic growth of 4% to 4.5% in 2026. 

(Reporting by Rozanna Latiff; Editing by David Stanway)