‘Tariffs not main threat to Malaysia trade in 2026’

KUALA LUMPUR, Malaysia (MNTV) – Fears that sweeping U.S. tariffs would significantly disrupt global trade, including that of Malaysia, have so far failed to materialize, with economists saying the outlook for 2026 appears similarly resilient, reports New Straits Times.

Economist Dr Geoffrey Williams said pessimism surrounding tariffs proved misplaced in 2025 and Malaysia’s trade is unlikely to be significantly affected by U.S. tariffs this year. 

Citing data from CGS International Securities Malaysia Sdn Bhd, he said 62.8% of Malaysian exports to the U.S. were exempted from tariffs when measured by actual export value.

More than 2,000 tariff lines relevant to bilateral trade were zero-rated or abolished by both sides, reducing Malaysia’s effective exposure to U.S. tariffs to just 4.6%.

“This is one of the best exemption performances in Asean and Malaysia also reduced tariffs on 6,911 products under the agreement, improving the overall tariff regime for both countries,” he said.

Williams added that Malaysia External Trade Development Corp data for January to November showed overall trade rose 5.8% year-on-year. This was driven by higher imports, which increased 6.1%, while exports grew 5.6%. Net trade contribution to gross domestic product was also 10.7% higher than in the same period of 2024.

Exports to the U.S. rose 13.9% during the January-to-November period, while imports from the U.S. increased 7.9%, resulting in a 19.5% rise in Malaysia’s overall trade surplus with the U.S.

Nevertheless, Williams noted that 2025 was a turbulent year for trade, with the balance briefly edging close to a deficit in May, when the surplus narrowed to just RM760 million.

Williams attributed this largely to exchange rate movements, noting that the ringgit strengthened sharply from October, weighing on exports in November. Front-loading of exports also meant many orders had been fulfilled ahead of year-end.

“The ringgit is overvalued which makes exports more expensive, this is the main risk to trade. First the ringgit appreciation of almost 10 per cent makes it difficult for exporters to compete. Second, the possibility of a sharp correction creates uncertainty for exporters. This is a greater challenge for 2026 than tariffs,” he said.

Economist and Putra Business School professor Dr Ahmed Razman Abdul Latiff said most Malaysian exports exempted from tariffs, such as semiconductor products, would face no material impact in the U.S. market.

However, with a strengthening ringgit and a 19% tariff imposed on other Malaysian products, exporters may gradually shift their focus to alternative markets. “This shift would depend on the availability of similar demand for these products. If such alternative or replacement markets cannot be found, it will slow the growth of Malaysia’s exports this year, especially to the U.S.,” he said. 

Meanwhile, the signing of Malaysia’s Agreement on Reciprocal Tariffs (ART) with the U.S. is expected to provide greater stability for exports to the world’s largest economy, particularly for the semiconductor sector.

UniKL Business School Associate Professor Dr Aimi Zulhazmi Abdul Rashid said that despite the 19% tariff, exemptions provided significant relief to several industries, including palm oil.

“The 19% rate places Malaysia in a competitive position compared with neighboring Southeast Asian countries. This is likely to attract investors, particularly foreign direct investment (FDI), as Malaysia offers clarity while other countries have yet to finalize their tariff rates with the U.S.,” he said.

Aimi added that under the ART, U.S. investors may view Malaysia more favorably as the country has committed to providing better access for U.S. industrial and agricultural goods. “This could influence Malaysia’s inclusion in global supply chains controlled by American businesses, directly bringing FDI into the country,” he said.