Malaysia’s 10% US tariff beats regional rivals, but for how long?

Malaysia has won a small victory in Washington’s tariff wars, securing a 10 per cent rate that leaves it better placed than four of its Southeast Asian neighbours in the scramble for US orders. Economists warn the narrow advantage may prove fleeting, however, as it hinges on Kuala Lumpur fulfilling its promised trade reforms. The new duties, which fall under Section 301 of the US Trade Act and took effect on Friday, keep Malaysia in the lower tier of a new American tariff regime alongside Indonesia and Cambodia – while Thailand, Vietnam, Singapore and the Philippines were pushed to 12.5 per cent. For Malaysian exporters, the latest levy caps a dizzying 16 months. US President Donald Trump first announced a 24 per cent “reciprocal” tariff on the country in April last year, before lowering it to 19 per cent in August after talks tied to an Agreement on Reciprocal Trade, signed in October. A US Supreme Court ruling in February then rendered this and Trump’s other “reciprocal” tariffs essentially void, to be replaced by a temporary 10 per cent global levy that was in place until Friday’s Section 301 tariffs were imposed, allegedly due to forced labour concerns. US Trade Representative Jamieson Greer said the new duties were intended to push trading partners to adopt and enforce import bans comparable with Washington’s own. “The United States has had a forced labour import ban for nearly a century, and rigorously enforces it,” he said on Thursday. “It’s well past time for our trading partners to do the same.” Crucial carve-outs The 10 per cent headline rate applies only to part of Malaysia’s export basket, with exemptions granted to products Washington says could cause shortages or wider disruption to the US economy. Fewer than one-third of Malaysian exports to the US actually fall under the levy, according to CIMB Treasury and Markets Research, resulting in a trade-weighted effective tariff rate of 5.1 per cent. Palm oil, palm kernel oil, oleochemicals and plywood were among the products newly exempted, representing some 2.1 billion ringgit (US$513 million) in annual exports. Rubber gloves remain Malaysia’s largest tariffed product group, at 6.5 billion ringgit, followed by printing machinery parts and medical instruments at roughly 4.5 billion ringgit apiece. Malaysian shipments to the US climbed 17.2 per cent year on year to a record 233.08 billion ringgit in 2025, according to Malaysia’s official trade figures. Washington puts the two countries’ bilateral goods trade at US$88.5 billion, leaving the US with a US$30.8 billion deficit. The 10 per cent tariff rate reflected recognition of Malaysia’s commitment to introduce and enforce a ban on imports produced with forced labour, the Investment, Trade and Industry Ministry said in a statement on Friday – pointing to the work of an inter-agency task force that was reviewing the relevant laws. Deborah Elms, head of trade policy at the Singapore-based Hinrich Foundation think tank, cautioned against interpreting Washington’s new tariff structure as a precise judgment on how effectively individual countries were combating forced labour. “This use of Section 301 is not really about forced labour,” she told This Week in Asia. “It doesn’t get at forced labour practices and it does not distinguish between countries that are serious about stopping movement of goods created with forced labour and those that simply claim to be doing something about it.” Elms said countries appeared to have been sorted based on whether they already had the relevant laws on the books or, like Malaysia, had signed trade agreements containing forced-labour commitments. The Office of the United States Trade Representative has said the 10 per cent applies to economies that already impose a forced-labour import ban, had committed to establish one through a reciprocal trade agreement, or operated a partial regime blocking certain goods. Under its agreement with Washington, Malaysia has two years from the pact’s entry into force to prohibit imports produced wholly or partly with forced labour. A fixed floor Unlike countries hit with a 12.5 per cent tariff, Elms said she saw no clear routes for Malaysia to secure a rate below 10 per cent, however rigorously it enforces its own rules. “What can be done is to continue to exempt specific goods from tariffs,” she added, referring to carve-outs Washington had granted to certain products, such as those the US did not produce in sufficient volumes to meet demand. Firdaos Rosli, chief economist at Malaysian financial services provider AmBank Group, said the tariff gap alone was unlikely to reshape long-term investment decisions, as manufacturers also weighed “ecosystem depth, supply chain integration, workforce quality, infrastructure and policy predictability”. Malaysia’s investment appeal was anchored in its established manufacturing base and relative policy stability, he said, noting that approved investments rose to US$22.9 billion in the first quarter of 2026 from US$20.9 billion a year earlier. Ahmed Razman Abdul Latiff, an economic analyst at Putra Business School, pointed out that many Southeast Asian nations did not directly compete for US market access in the same product categories. Malaysia’s shipments were weighted towards electrical and electronics components, he said, while Singapore depended more on service exports, and Vietnam and Indonesia competed in other manufacturing segments. “The advantage is marginal,” Ahmed Razman said, urging Malaysia to keep diversifying its products and export markets rather than relying on a US tariff quirk. The quirk itself may not last. A separate, unresolved Section 301 investigation into structural overcapacity across 16 economies – Malaysia, Indonesia, Singapore and Thailand among them – could yet push the headline US tariff rate for Malaysian exports to 15 or 19 per cent, according to CIMB.

Malaysia’s 10% US tariff beats regional rivals, but for how long?

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Malaysia’s lower rate hinges on promised forced-labour reforms, even as an overcapacity investigation threatens higher levies

Malaysia’s lower rate hinges on promised forced-labour reforms, even as an overcapacity investigation threatens higher levies