KUALA LUMPUR: The current 10 per cent tariff imposed on Malaysian exports by the US is only a temporary measure and will expire after 150 days, Investment, Trade and Industry Minister Datuk Seri Johari Abdul Ghani said.
A new tariff structure will then be determined based on ongoing discussions with the US, he added.
Johari said Malaysia's exposure mainly centres on two areas - market access capacity and forced labour issues - while environmental and state subsidy concerns are not applicable.
"Malaysia does not practice forced labour, but the issue arises from goods imported from third countries where we do not have a mechanism to verify whether forced labour is involved," he told the New Straits Times.
As a result, the US has proposed a 10 per cent tariff linked to forced labour concerns.
The final tariff level will depend on the outcome of negotiations on market access capacity, which could determine whether the total rate remains at 10 per cent or rises further, Johari explained.or 12.5 per cent on imports from 60 economies including Malaysia.
This follows a review by the US Trade Representative into countries' efforts to curb trade in goods linked to forced labour.
Under the proposal, Malaysia is among a group of economies facing a proposed 10 per cent tariff, while another 45 economies could be subjected to a 12.5 per cent tariff.
Johari said the proposed 10 per cent tariff is not an additional levy on top of the temporary tariff currently being paid.
"Not on top of what we are paying right now, 10 per cent that is under temporary. My take is very simple. All of this is only not preferable to people who export to the US.
"So the outlook for the reduction of 19 per cent to 10 per cent is better than before. When the 10 per cent that we paid in the last 150 days expires, then this 10 per cent will be replaced," he added.
Johari said Malaysia is engaging with US authorities to present its case, although it currently lacks legislation covering forced labour practices in third countries.
The minister said the impact would mainly be felt by exporters shipping goods to the US, as higher tariffs could raise product prices and potentially reduce demand.
However, he noted that the situation is still more favourable compared with the previous 19 per cent tariff, as the reduction to 10 per cent would ease pressure on Malaysian exporters.
"When we export to the US, the tariff is ultimately paid by consumers there. If products become more expensive, orders may decline. But essential products will continue to be sold," he said.
He added that the proposed measures remain under deliberation, with the final outcome dependent on Malaysia's discussions with the US.
Meanwhile, industry groups said the new US tariffs may weaken market access and competitiveness, while increasing pressure on exporters facing rising costs.
Federation of Malaysian Manufacturers (FMM) president Jacob Lee Chor Kok said the proposal extends beyond labour standards, carrying trade implications through its effect on market access, export competitiveness and cross-border trade.
"The proposal also sends a broader message that labour compliance, environmental, social and governance (ESG) requirements and supply chain traceability are becoming increasingly important determinants of market access," Lee said when contacted.
Key Export Sectors Could Face Pressure
Lee said the sectors will most likely be affected include electrical and electronics products, machinery and equipment, medical devices, rubber products, furniture, textiles and apparel, as well as selected chemical, plastic and consumer goods manufacturers.
"The impact on individual companies will depend on the final tariff rates, product coverage and the ability of businesses to absorb or pass on additional costs, " he said.
FMM urges continued engagement between Malaysian and US authorities to ensure that the steps taken to strengthen labour standards, enforcement mechanisms and supply chain governance are fully recognised before any final decision is adopted.
SMEs Fear Loss Of Competitiveness
Samenta national president Datuk William Ng said the proposed tariff would be particularly challenging for SMEs, many of which are already operating on thin margins due to rising labour and energy costs.
Ng said passing the higher costs on to customers could make Malaysian products less competitive in the US market, while absorbing the costs would reduce funds available for automation, upgrading and ESG compliance.
Government Support Needed
SME Association of Malaysia president Dr Chin Chee Seong said most SMEs would struggle to absorb additional tariff costs amid a weak global economy, geopolitical uncertainties and rising business expenses.
Chin identified electronics, machinery, furniture, rubber products, plastics and supporting supply-chain industries among the sectors most vulnerable to the proposed tariffs.
"The biggest concern is competitiveness. Malaysian SMEs are not only competing against local businesses but also against companies from Vietnam, Indonesia, Thailand, India and other regional economies.
"Higher tariffs will make Malaysian products more expensive and less attractive to US buyers, reducing our competitiveness in the global market," he said.
He urged the government to strengthen export diversification efforts, provide financing support, expand ESG compliance assistance and help SMEs better utilise existing free trade agreements such as Regional Comprehensive Economic Partnership and Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
Economists See Room For Diplomacy
Despite concerns from industry groups, economists believe there is still room for negotiations.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said tariff shocks have become increasingly common as the US continues to pursue protectionist policies aimed at boosting domestic production.
He said Malaysia could use diplomatic channels to demonstrate that labour-related concerns are being addressed, noting that ESG and sustainability practices have become standard among major corporations.
"I suppose room for negotiation is still open and our government can present its case that forced labour issues are being addressed," he said.
Universiti Teknologi Mara senior lecturer Dr Mohamad Idham Md Razak described the potential impact as a short-term adjustment rather than a long-term structural setback.
He said Malaysia's diversified export base and strong integration into global supply chains would help cushion the impact, while the tariff proposal could encourage further improvements in compliance standards and value-added activities.
Idham also pointed out that Malaysia's proposed 10 per cent tariff is lower than the 12.5 per cent rate proposed for some other economies, potentially giving Malaysian exporters a relative advantage within affected supply chains.
"Overall, the situation is less about losing competitiveness and more about Malaysia maintaining a comparatively favourable position while adapting to evolving global trade conditions," he added. - NST
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