Malaysia’s US tariff exposure drops to 4.6pc of GDP

KUALA LUMPUR, Malaysia (MNTV) – The share of Malaysia’s exports to the US that are subject to reciprocal tariffs has fallen sharply from the equivalent of 12.4 percent of gross domestic product (GDP) to 4.6 pc, reports New Strait Times. 

This comes as a larger portion of Malaysian goods now qualify for tariff exemptions, which have increased from 46.5 pc to 62.8 pc of exports to the U.S., one of the highest exemption levels in Asean.

CGS International Securities Malaysia analysts Jeremy Goh and Prem Jearajasingam said the improvement follows Malaysia’s designation as one of Washington’s “aligned partners”.

“Prior to the signing of the Agreements on Reciprocal Trade (ART), there were already three rounds of broad-based reciprocal tariff exemptions,” they said in a Malaysia Strategy note. 

“We estimate this to account for 46.5pc of Malaysia’s exports to the U.S. in 2024. With the new exemptions for aligned partners, cumulative exemptions have risen to 62.8pc by our calculations, which is one of the highest in Asean,” they added.

Within Asean, the average reciprocal tariff was cut from 33pc to 23pc. Malaysia’s rate was reduced from 24pc to 19pc, placing it on par with Cambodia, Thailand, the Philippines and Indonesia (all 19pc), while Vietnam stands at 20pc.

Goh and Jearajasingam said episodes of “tariff tantrums” could still occur but the broader direction points to de-escalation. 

They highlighted several key developments, including the maintenance of the U.S.-China truce, the delay in the semiconductor tariff investigation and recent court rulings that are constraining tariff powers.

During U.S. President Donald Trump’s visit to Malaysia from Oct 26 to 27 for the Asean-US and East Asia Summits, Washington signed ART agreements with Malaysia and Cambodia and announced negotiation frameworks with Thailand and Vietnam.

Under the pact, Malaysia will reduce or eliminate tariffs on nearly all U.S. exports and provide non-discriminatory market access for U.S. agricultural and industrial goods, among others.

The country will also address non-tariff barriers and make commercial purchases including liquefied natural gas, coal, aircraft, semiconductors and data-center equipment.

Both countries also signed a memorandum of understanding to expand cooperation in critical minerals.

In return, Malaysia, along with Cambodia, Thailand and Vietnam, was designated an aligned partner eligible for additional exemptions.

Goh and Jearajasingam said before the ART, the three rounds of broad-based exemptions announced in April and September already covered 46.5pc of Malaysia’s exports to the U.S. in 2024. 

With the aligned partner exemptions added, Malaysia’s cumulative exemption rises to 62.8pc.

“In turn, these exemptions reduce Malaysia’s exports exposed to U.S. reciprocal tariffs from the equivalent of 12.4pc of GDP to 4.6,” the analysts said.