US tariffs waiver to help Malaysian semiconductor firms mitigate impact of chip production costs

KUALA LUMPUR: The exemption of Malaysia's semiconductors from US sweeping tariffs will help mitigate any direct impact on chip production costs but uncertainties persist, according to Public Investment Bank Bhd (PublicInvest).The firm said uncertainties persist around potential cost increases for non-semiconductor systems and components sourced from other regional countries. "Following this, we expect retaliatory measures from China and the European Union while some countries might plan to hold negotiations with the US.

"Though the tariff is only imposed on the US importers, we believe the additional costs derived from the reciprocal tariffs would be absorbed by all players in the supply chain including the end customers," it said in a note.PublicInvest pointed out that Malaysia has a cost advantage over its regional peers in the manufacturing space. Meanwhile, potential retaliation from China may result in a shift of more technology-related investments towards Malaysia, given its moderate tariff levels and strong diplomatic ties with both major economic powers.



The firm asuggested that the tariff policy could lead to delays in semiconductor manufacturing decisions and increased negotiations between the US and Malaysia. It may also trigger retaliatory actions from China and the European Union, potentially affecting the global economy.While manufacturers might divert away from high-tariff countries like China, Bangladesh, Sri Lanka, Thailand and Vietnam, PublicInvest said Malaysia's favourable tariff rates could prevent significant outflows"Within the Southeast Asia, it is unlikely to see significant outflows from Malaysia given its all-in tariff remains favourable compared to Cambodia (97 per cent), Laos (95 per cent), Vietnam (90 per cent), Thailand (72 per cent) and Indonesia (64 per cent).

"Under the worst-case scenario, we see weaker consumer demand from the US market while manufacturers are unable to pass on the additional costs by raising the prices," the firm added.Therefore, PublicInvest maintained 'overweight' on the technology sector.© New Straits Times Press (M) Bhd.