Kuala lumpur: Malaysia remains engaged in quiet diplomacy with the United States (US) as it seeks to revise the 25 percent tariffs on its exports to the American markets ahead of the August 1 deadline.

According to BERNAMA News Agency, Malaysia’s approach contrasts with other ASEAN countries that have quickly secured deals with Washington. Innes suggests that Malaysia’s deliberate stance reflects a strategic positioning rather than passivity. Unlike nations opting for high-profile diplomatic efforts, Malaysia prefers quiet engagement and multilateral cooperation to address complex trade tensions.

With the deadline approaching, exporters and investors are closely monitoring the negotiations’ outcome, which could significantly impact the cost dynamics of trade between Malaysia and its third-largest trading partner. While countries like Indonesia and Vietnam have successfully reduced their tariffs to 19 and 20 percent, respectively, Malaysia is negotiating terms that protect local industries without compromising national interests.

The proposed tariffs, a revival of protectionist measures from former President Donald Trump’s first term, have introduced uncertainties across Southeast Asia, where economies are deeply integrated into global supply chains. Malaysia’s Investment, Trade and Industry Minister, Tengku Datuk Seri Zafrul Abdul Aziz, has noted that talks with the US are progressing well, with a focus on achieving a balanced resolution.

Innes highlighted that Malaysia’s low-profile strategy aligns with its broader objectives of maintaining economic openness, avoiding entanglement in great power rivalries, and preserving regional alignment within ASEAN. By remaining restrained, Malaysia aims to safeguard its long-term credibility as a stable, rules-based partner.

However, Innes warned that Malaysia’s export economy, heavily reliant on electrical and electronic goods, precision machinery, and intermediate components, faces real exposure. A 25 percent tariff could significantly disrupt supply chains, particularly in sectors like semiconductors and specialized modules, which are challenging to reroute. The impact would be felt most acutely in hubs like Penang, where small and medium enterprises and multinationals are deeply interconnected.

The absence of a bilateral free trade agreement (FTA) with the US limits Malaysia’s negotiating options, but Innes believes it doesn’t entirely close off possibilities. Malaysia remains strategically important to US firms seeking reliable, non-China supply bases, providing leverage, especially if Malaysia targets exemptions for specific sectors related to US industrial or security interests, such as chip packaging or electric vehicle components.

Unlike Indonesia, which has secured tariff relief through major purchases, Malaysia’s strategy differs. Innes suggests that Malaysia could offer co-investment opportunities in green tech, digital infrastructure, or rare-earth refining, aligning with its industrial roadmap while providing Washington with valued supply chain resilience and diversification. However, the trade-offs involved in such negotiations are complex.

Innes emphasized that any agreement should benefit not just large exporters but also local suppliers, workers, and tech development ecosystems. Failure to reach a deal might not be catastrophic nationally, but it could have significant repercussions for key sectors. Innes cautioned that export growth could slow, investment plans might be paused, and employment could tighten in affected industries. The greater risk lies in losing ground in a global supply chain reshuffle that increasingly favors agility and alignment. Although Malaysia still has room to maneuver, the window is closing.

Meanwhile, Moody’s Analytics economist Denise Cheok noted that Malaysia’s economic exposure to the US through value-added trade is more significant than headline export figures suggest. Using OECD Trade in Value Added (TiVA) data, Cheok highlighted that Malaysian domestic value added embedded in foreign final demand to the US accounts for slightly over 5 percent of the country’s GDP. This measure includes not only direct exports of final goods but also intermediate components that eventually reach American consumers, providing a more comprehensive picture than gross exports alone.

Cheok compared this exposure to over 9 percent of GDP for Singapore and about 2 percent of GDP for Indonesia. If the full 25 percent tariff is imposed without any supply chain adjustments, Cheok estimates the impact could reduce Malaysia’s GDP by up to 2.6 percent in 2025, with uneven effects across sectors. The manufacturing sector is expected to be particularly hard hit, both by direct tariff impacts and by global supply chain disruptions caused by tariff policy uncertainties.

Cheok added that Malaysia, like many of its Southeast Asian peers, relies heavily on exports as a growth model, making structural changes challenging even in the long term. She advised that Malaysia should continue strengthening trade relations with other economies, including ASEAN, to counterbalance the ongoing trade tensions with the US.