Author: Maria Pechurina, MA, Director of International Trade @ Peacock Tariff Consulting
US Tariffs & Malaysia’s Economic Impact
The 24% US tariffs, announced in April 2025, hit Malaysia, which is a popular location for Chinese transshipment, hard. These trade challenges manifested in the key export-led industries such as palm oil, electronics and solar panels, further tightening external pressure on Malaysia’s export-oriented growth model. Already contentious with the EU over sustainability concerns in the palm oil industry due to its link to deforestation, tariffs further eroded competitiveness and Malaysia looked for alternative trade routes for their major export.
The economic pressure incentivized Malaysia to deepen ties with China, both in trade and tech cooperation. Amidst the imposition of US tariffs, Malaysia and China strengthened their bilateral relationship, signing 30 bilateral agreements following President Xi’s visit to Kuala Lumpur back in April. As it happened, this aligned with the 50th anniversary of the Malaysia-China diplomatic ties, but unlike many other such celebrations, the move was far from symbolic. Featuring agreements such as the installment of the Chinese satellite navigation system, BeiDou Satellite Navigation System, or BDS for short, into Malaysian infrastructure, the agreements accelerated China-Malaysia cooperation and reduced Malaysia’s reliance on western technology while advancing China’s geospatial objectives. Additional areas of cooperation included many of China’s active priorities such as Artificial intelligence, green technology, satellite navigation, digital innovation, intellectual property and manufacturing.
Despite Malaysia’s status as a major exporter of solar panels, their rise to prominence in the industry was funded largely by Chinese companies who invested over $15billion USD into the country, thereby creating thousands of jobs. During the Biden presidency, the US imposed a 250% tariff on solar panels manufactured in Malaysia, pushing all but two producers out of business and leading the country to rethink the means of powering their future economic growth. These numbers underscore Malaysia’s vulnerability to both shifts in US trade policy and the loss of China’s investment or demand.
Chips and AI
Malaysia’s semiconductor industry is deeply embedded in global supply chains, and generally the businesses are advised to adhere to individual countries’ export controls regulations to avoid bringing on sanctions against Malaysian businesses. Chinese firms reportedly use Malaysian distributors and resellers to indirectly purchase US chips that they can’t buy outright due to US export controls. This makes Malaysia a gray-zone, allowing Beijing to leverage its neutrality and deep integration in the Western supply chain and side-step enforcement by routing chip purchases through Malaysia.
In June of this year, Malaysian trade authorities launched an investigation into allegations that China trained their large Language model by renting huge data centers operating on Nvidia chips to bypass US regulations that curbed China’s access to such high end chips. This was made possible by four engineers who flew in from Beijing in early March, carrying suitcases packed with hard drives with 80 terabytes worth of data – spreadsheets, images, video and the like – to train an AI model.
Image Source: Wall Street Journal
Malaysia’s Hedge amidst US-China Trade War
Although China’s DeepSeek has attempted to train their model by utilizing Huawei chips, the current technology proved insufficient to accomplish the task at hand, which suggests that China will not force Chinese LLM makers to operate on domestic chips in the short term if it means falling behind the United States’ progress in AI advancement, further perpetuating Nvidia dependence and strengthening the position on intermediaries like Malaysia.
Given Beijing’s pragmatism, admitting US monitoring and tracking devices in Nvidia exports raised paranoia, but didn’t stop purchases. However, any seeming US “concession” such as allowing China to buy H20/Nvidia chips, and the company agreeing to offset tariff costs for the Chinese consumers may lose its bargaining value. In turn, Beijing may decide to hold firm on trade fronts by cutting concessions on rare earths export controls.
The new tariffs raise hard questions for countries that have long used Chinese components to make the final products they ship to the United States. This poses a question of whether the Trump administration, which has yet to detail how it would enforce the new transshipment tariffs, wants to tax it all. While Malaysia risks scrutiny if US sanctions spread, its heavy integration and reliance on Chinese investment makes their position difficult as they balance between Washington’s enforcement and Beijing’s demand.
The shifting tariff landscape between the U.S., Malaysia, and China highlights just how quickly global trade risks can escalate. Companies relying on international supply chains face higher costs, new compliance hurdles, and the real possibility of regulatory scrutiny if paperwork or sourcing strategies aren’t tightened up.
That’s where Peacock Tariff Consulting comes in.
We help businesses:
- Navigate new tariffs and minimize costs through accurate classification and duty planning.
- Ensure compliance with U.S. Customs rules to avoid fines, shipment delays, or reputational risk.
- Build resilient strategies to handle shifting trade policies and supply chain pressures.
If your company imports or exports goods affected by U.S.-China trade frictions, now is the time to get expert guidance. Contact Peacock Tariff Consulting to protect your business and stay ahead of the changes.