Editor
Dinesh Raj chevron_right
Malaysia builds a bigger slice of the world's electronics than almost anyone notices. Roughly one in ten of the chips inside the world's phones, laptops and cars passes through a factory here to be packaged, assembled or tested. For most of this year those chips have slipped past the tariffs Washington has thrown at nearly everything else. A review now underway in the United States could change that, and the factories in Penang know it.
The reprieve rests on an exemption. When the Trump administration set a 10 percent tariff on Malaysian goods this year, down from a higher rate earlier in 2026, semiconductors were carved out. They still enter the United States largely duty-free. But that carve-out was never meant to be permanent. It sits inside a national-security investigation, known as a Section 232 review, that the US Commerce Department has been running on chips, chipmaking equipment and the products built from them. Commerce was due to report its findings around the middle of this year, and the next phase could extend a duty of as much as 25 percent to semiconductors themselves.
Nobody in the industry knows which way it will go, and that uncertainty is a cost of its own.
Malaysia has a lot riding on the answer. Electrical and electronic products make up about 40 percent of everything the country exports, and the United States is the third-largest buyer of its chips. The unusual part is who actually owns that output. Around 65 percent of Malaysia's chip exports to the US come from American companies that run their packaging and testing here: names such as Intel, which operates a multibillion-dollar plant in Penang, alongside Infineon and Texas Instruments. A tariff on Malaysian chips would, in large part, be a tariff American firms pay on their own Malaysian production. That is the argument Malaysian officials have carried into talks with the US Trade Representative and the Commerce Department.
The immediate effect on the ground is not a price shock. It is hesitation. Industry groups say member companies are holding back on expansion and fresh investment until the rules are clear, the wait-and-see posture that quietly freezes hiring and delays factory upgrades. For a state like Penang, which has spent a decade selling itself as a stable, neutral place to build chips, a pause is expensive even if the tariff never lands.
There is a longer thread for readers too. Chips are the first link in the chain that ends in the phones, graphics cards and laptops Malaysians buy. Costs that appear at the packaging stage have a way of surfacing later at the till, on top of the memory shortages already nudging device prices up this year.
For now the exemption holds, and Malaysia is betting that its place in American supply chains is too useful to tax. The Ministry of Investment, Trade and Industry has said removing the carve-out would reduce competitiveness and strain sectors tightly woven into US manufacturing. The figure to watch is not a launch date or a price. It is whether Commerce keeps chips outside the tariff wall, or decides the safest supply chain is one that runs through home soil. Malaysia has built a real advantage on being the neutral workshop of the chip world. This is the year that bet gets tested.
Images courtesy of TECNIC Bioprocess Solutions and Michael Dziedzic on Unsplash.
