Malaysia’s semiconductor industry, a key pillar of its export economy, is grappling with renewed uncertainty amid US-imposed tariffs and intensifying competition from regional peers, Channel News Asia reported. The Southeast Asian nation, the world’s sixth-largest semiconductor exporter, faces mounting pressure to retain investment and relevance in a fast-evolving global tech landscape.

Last month, the US slapped a 24% tariff on Malaysian exports, sparing semiconductors and a handful of electronics, as part of a sweeping trade policy under President Donald Trump. Although the tariffs were temporarily suspended for 90 days, the grace period is set to expire soon, leaving Malaysia with little time to negotiate a deal with Washington. Semiconductors and electronic goods make up 60% of Malaysia’s exports to the US, making the industry especially vulnerable.

In response, Malaysia has accelerated efforts to upgrade its capabilities. The government’s National Semiconductor Strategy, launched last year, aims to move the sector beyond its traditional role in outsourced assembly and testing towards high-end chip design, advanced manufacturing, and R&D. Yet, policy experts caution that trade uncertainty has cooled investor sentiment. “There will be a lot of wait-and-see,” said Sharmila Suntherasegarun of think tank IDEAS, noting that greenfield investments and R&D spending are particularly at risk.

Smaller firms are feeling the pressure too. “We don’t invest in uncertainty,” said William Ng, president of the SME Association of Malaysia, advising against speculative moves until policy clarity emerges.

Major US multinationals with Malaysian operations, such as Intel, now face pressure from the Trump administration to reshore production. Any future tariffs on Malaysian semiconductors could jeopardise their cost structures and local employment. “These are the exact jobs the US wants to bring home,” noted Dr Tricia Yeoh of the University of Nottingham Malaysia.

Despite the headwinds, industry leaders remain hopeful. Wong Siew Hai, president of the Malaysia Semiconductor Industry Association, urged continued engagement with US stakeholders. “We’ve played a critical role in the growth of firms like Intel, AMD, and HP. That legacy matters,” he said.

Still, Malaysia must contend with fierce competition across Southeast Asia. Experts warn that the country’s chipmakers must boost productivity and transition up the value chain to stay ahead. Austrian electronics firm AT&S, which is expanding in Kulim, pointed to workforce development as a key factor. “It’s crucial to have a talent pipeline ready,” said AT&S executive vice-president Ingolf Schroeder.

While geopolitical tensions cast a shadow, many remain confident in Malaysia’s long-term potential. “There will be an end to these tariff discussions,” Schroeder added. “Malaysia will be in a strong position when that happens."