Existing Pressures Deepen with New Tariff Hike
Manufacturers are already struggling with higher costs due to the expanded Sales and Service Tax (SST) and electricity base tariff revisions. Feedback from businesses has highlighted the unsustainable impact of the previous 10% tariff, with many warning of declining exports and squeezed profit margins. The newly announced 25% tariff is expected to worsen these issues, especially for firms tied to long-term contracts or operating on thin margins.
Semiconductor Exceptions Not Enough
While semiconductors are exempt, the broader ecosystem—including component suppliers, machinery providers, and service vendors—remains vulnerable. Other key export segments such as rubber, textiles, furniture, and industrial components will face major disruptions.
Malaysia at a Competitive Disadvantage
FMM highlighted that while Malaysia initially proposed a 24% tariff, countries like Vietnam have successfully negotiated reduced rates (20%), while others in ASEAN (e.g. Singapore, Brunei, Philippines) were not targeted at all. The disparity may lead US buyers to shift sourcing away from Malaysia, threatening the country’s market share and long-term position in global supply chains.
Urgent Diplomatic and Domestic Interventions Needed
FMM urges the Government to intensify diplomatic efforts through the Ministry of Investment, Trade and Industry (MITI) and NGCC to seek a deferral of the August implementation, or better, a full exemption. Malaysia must clearly present its strategic value to US supply chains, especially in high-tech sectors.
Call for SST Reform to Relieve Industry Burden
The expanded SST, implemented on July 1, has worsened cost pressures, particularly due to the lack of a B2B exemption. FMM calls for an immediate review, proposing automatic tax exemptions for licensed manufacturers and a long-term tax framework that eliminates cascading tax effects.
Strengthening Trade Competitiveness Through Incentives
FMM recommends enhancing export promotion by:
- Increasing the Market Development Grant ceiling
- Waiving MATRADE administrative fees for association-led missions
- Supporting certification, branding and digital exports
To drive productivity, it urges the introduction of:
- Tax incentives for automation and digitalisation
- A new MADANI Manufacturing Digitalisation Grant for SMEs
- Low-interest financing for tech adoption
These must be supported by workforce upskilling and inclusive access to support funds.
Reinforcing Supply Chain and Regional Integration
FMM recommends:
- Using foreign worker levy funds for apprenticeships and high-tech investments
- Establishing a National Supply Chain Council to drive cross-sector coordination
- Leading ASEAN in forming a Regional Supply Chain Coordination Council to manage future global trade disruptions and boost regional integration
Broaden Trade Networks Beyond the US
To reduce over-reliance on any one country, Malaysia must expand trade agreements, including finalising the Malaysia-EU Free Trade Agreement and intensifying negotiations with emerging markets in Africa, Latin America and the Middle East.
A Call for Coordinated and Decisive Action
FMM concludes by stressing the urgency for government-industry collaboration. With well-coordinated policies and structural reforms, Malaysia can weather current shocks, preserve jobs, and maintain its position as a resilient and globally trusted trading partner.
