Malaysia’s semiconductor strategy in a shifting global trade landscape
06 Mar 2025
Malaysia’s economy is deeply intertwined with global supply chains, with semiconductors and electrical components forming the backbone of its exports to the United States.
However, the looming threat of tariffs poses significant challenges, potentially disrupting this ecosystem. To safeguard its position in the semiconductor industry and strengthen its trade partnerships, Malaysia must take a strategic and forward-looking approach.
Total trade in goods between Malaysia and the United States amounted to US$80.2 billion, with Malaysia exporting US$52.5 billion worth of goods and importing US$27.7 billion.
Key Malaysian electronic exports to the US include integrated circuits, semiconductor devices, and broadcasting equipment. Given the scale of this trade relationship, any disruption caused by tariffs could have wide-ranging consequences.
President of the United States Donald Trump has argued that tariffs on US imports are necessary to revive domestic manufacturing. However, this strategy may not bode well for US companies operating in Malaysia. Semiconductor giants such as Intel, AMD, and Micron have invested billions in Malaysia’s semiconductor ecosystem and have built strong supply chain integration with local and Asean partners. Relocating these highly specialised operations is costly and disruptive, making an immediate exit unlikely.
If the US imposes tariffs, alternative locations offer limited advantages. Vietnam lacks the scale and advanced infrastructure for semiconductor manufacturing, while India remains a costly option as it is still developing its semiconductor ecosystem. Indonesia, though emerging as a potential player, faces significant hurdles before becoming a formidable force in the industry.
While the imposition of tariffs could hurt Malaysian semiconductor companies, it could also increase costs for US tech companies. Higher tariffs on Malaysian semiconductors and electronics would raise costs for US businesses relying on these components, affecting key sectors such as automotive, telecommunications, and defence. US firms may petition their government for exemptions, as they did with Chinese tariffs, to mitigate disruptions.
Malaysia must capitalise on this situation by moving up the semiconductor value chain to reduce its vulnerability to tariffs and trade disputes. Currently, the country is a key player in semiconductor assembly, testing, and packaging (ATP), but it lags behind in chip design, wafer fabrication, and advanced manufacturing. By focusing on these areas, Malaysia can enhance its competitiveness and secure its role in the global semiconductor landscape.
To achieve this, Malaysia must strengthen partnerships with semiconductor giants such as Intel, AMD, and Texas Instruments to establish chip design and R&D centres within the country. Offering tax incentives and grants to US semiconductor firms can encourage the development of next-generation AI, automotive, and 5G chips in Malaysia. Additionally, Malaysia should transition beyond traditional assembly and testing towards advanced packaging to increase value addition and attract investment in emerging fields such as silicon photonics, which is critical for AI chips and high-speed data centres.
Malaysia should also position itself as a semiconductor resilience hub by offering special incentives for US semiconductor firms to expand their presence rather than relocate elsewhere. Establishing Special Economic Zones (SEZs) for semiconductor manufacturing, with tax breaks and streamlined approvals, can further strengthen Malaysia’s appeal.
A robust talent pipeline is equally crucial. The government must strengthen local semiconductor engineering programmes in partnership with US universities and tech companies while providing scholarships for students to specialise in chip design, fabrication, and AI-driven semiconductors. Encouraging Malaysian semiconductor startups to collaborate with US firms on AI chips, automotive chips, and 6G technologies can further drive innovation. Government grants and venture funding can support these initiatives, fostering a strong domestic semiconductor ecosystem.
While Malaysia deepens its collaboration with the US, it must also maintain a balanced approach in its relations with China. Allowing Chinese companies to invest in packaging and testing while keeping core chip design and fabrication aligned with the US will enable Malaysia to navigate geopolitical tensions effectively. Strengthening regional ties through a semiconductor alliance with Singapore, Vietnam, and Indonesia can also position Malaysia as a key player serving both the US and Chinese markets.
As Malaysia navigates the shifting dynamics of global trade, decisive action is necessary to secure its semiconductor industry’s future. By advancing in the value chain, strengthening ties with US tech giants, and investing in R&D and advanced manufacturing, Malaysia can mitigate the impact of tariffs while enhancing its long-term competitiveness. At the same time, balancing relations with China will be essential to maintaining its status as a trusted global semiconductor hub. By positioning itself as a resilient, high-value semiconductor player, Malaysia can turn these challenges into opportunities and reinforce its role in the global supply chain.
*The writer holds an MBA from the University of Strathclyde in the UK awarded through the prestigious British Chevening Scholarship. With extensive experience in the financial markets and a robust background in management education, he has also served at a prominent think tank.
Source: NST
