Penang, April 8, 2025 – The manufacturing and export sectors in Penang are bracing for significant challenges following the recent imposition of a 24% tariff on exports to the United States. Industry players, especially export oriented companies and their suppliers, are urgently reviewing strategies to mitigate the impact on their operations, profitability, and workforce.

1. Immediate Business Impact

Export-oriented companies are rapidly reassessing their business strategies. Many are revising profit and loss (P&L) projections while exploring supply chain realignments, including shifting production to countries with lower tariff exposure and/or relocating segments of operations to the U.S.

2. Local Automated Test Equipment (ATE) Firms Take Action

Malaysians ATE companies that export to the U.S. are actively evaluating the feasibility of establishing final module assembly lines within the U.S. to circumvent the steep tariff increase and maintain market access.

3. Mexico is key beneficiary under U.S.-Mexico-Canada Agreement (USMCA)

Multinational corporations (MNCs) with existing operations in Mexico are also currently considering production shifts to Mexico. The USMCA, which allows 0% tariffs on compliant goods positions Mexico as a key beneficiary in this evolving trade landscape. Non-compliant goods currently face 25% tariff but this is expected to fall to 12% if the existing fentanyl/migration IEEPA orders are terminated.

4. Monitoring Regional Competition

While immediate concerns about competition from ASEAN countries and India remain moderate, ongoing trade negotiations between Vietnam and the U.S. are being closely watched. A favourable outcome could alter regional competitiveness and influence future investment flows.

5. Risk of Domestic Market Disruption

There is mounting concern over the potential dumping of excess inventory from neighboring countries into Malaysia’s domestic market, which could undercut local manufacturers, particularly SMEs, and distort market prices.

6. Broader Economic Concerns

Industry leaders warn of rising inflationary pressures, potential contraction in manufacturing activity, and job losses in the NEAR TERM if the tariff issue is not promptly addressed.

7. Deterrent to Future Foreign Direct Investment (FDI)

The 24% tariff sends a negative signal to prospective investors, who may now perceive Malaysia as a less competitive export base to the U.S. compared to countries with preferential trade terms. This may reduce Malaysia’s attractiveness for future FDI, particularly in high-value manufacturing sectors.

8. Industry stakeholders are calling on the Malaysian government to initiate urgent bi-lateral discussions with the U.S. administration.

There is a strong recommendation to negotiate tariff reductions, and to monitor negotiations with competing markets such as Mexico, Costa Rica, Poland and Ireland. This move is deemed critical to preserving the competitiveness and sustainability of Malaysia’s industrial base.

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InvestPenang is the Penang State Government’s principal agency for the promotion of investment. Its objectives are to develop and sustain Penang’s economy by enhancing and continuously supporting business activities in the State through foreign and local investments, including spawning viable new growth centers. To realise its objectives, InvestPenang also runs initiatives like the SMART Penang Center (providing assistance to SMEs), Penang CAT Center (for talent attraction and retention), and Global Business Services (GBS) Focus Group (promoting and developing digital economy) and Penang Silicon Design @5km+ (establishing a unique and interconnected ecosystem for IC design and technology enterprises). For more information, please visit https://investpenang.gov.my/ and follow InvestPenang’s social media channels: Facebook; LinkedIn; WhatsApp Channel and TikTok.

For more information, please contact:

InvestPenang
Elaine Cheah / Ong Yih Hwa
Communications & Business Intelligence
T: 604-646 8833
E: elaine@investpenang.gov.my/ yihhwa@investpenang.gov.my