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It doesn’t matter how they arrived at 47% when Malaysia’s import duty is a meagre 5.6% (simple average) and 3.3% (trade-weighted average)¹. Sales tax² is imposed on imported goods at a rate of 5% to 10%, but a long list of goods, persons, and raw materials are exempt. Excise duty is inconsequential to the total effective tariff rate as it only applies to limited industries³. It most likely doesn’t matter that our general understanding of reciprocity or discount is now being challenged.
It also doesn’t matter that our import controls and customs duties do not discriminate against other countries, as the cornerstone of trade under the World Trade Organisation’s (WTO) GATT is the Most Favoured Nation principle⁴, which mandates equal treatment to all WTO members.
It probably doesn’t matter that we practice a floating exchange rate, were recently removed from the U.S. Treasury Department’s monitoring list for currency manipulation⁵, and have never participated in any devaluation or currency intervention exercises like those seen in the Plaza and Louvre Accords.
It equally doesn’t matter that non-tariff barriers, like compliance with technical and sanitary standards imposed by SIRIM, CIDB⁶, or MAQIS⁷, are allowed under the WTO’s Technical Barriers to Trade Agreement and the Agreement on Sanitary and Phytosanitary Measures. It also likely doesn’t matter that non-tariff barriers cannot be quantified, at least not to the extent of 47%.
It also doesn’t matter that you can’t have your cake and eat it too when it comes to maintaining dollar hegemony as the global reserve currency and a healthy trade balance – the Triffin dilemma.
What matters
It matters for Malaysian manufacturers with significant exports to the U.S. to consider mitigation strategies in tandem with the Government-to-Government negotiations that MITI has promised. Options like relocation, lobbying with domestic industries, market diversification, trade diversion, and entry into new markets are on the table, each with its own risks and economic implications.
When considering these options, it is important to take into account rules of origin and the originating status of products, jurisdictional risks and regulations, and potential investigations into circumvention, duty evasion, transshipment, and export subsidy practices.
It equally matters to understand that the legal liability to account for import tariffs falls on the importer, not the exporter. Commercial absorption of tariffs is a separate matter altogether. It is material to engage with the U.S. importers and consumers along the supply chain to strategise the best approaches.
It also matters for importers of U.S. materials and goods into Malaysia to be on high alert and engage with the government proactively, as reciprocal tariffs are not out of the woods altogether should negotiations fall through, despite being ruled out immediately by the Ministry of Investment, Trade and Industry⁸.
We are at a crossroads: negotiate and apply for exemptions and volume quotas, impose reciprocal tariffs, or reduce our duties on imports. Our foreign policy is now being put to the test.
If you have any inquiries, please contact Partner Jason Tan Jia Xin (tjx@lh-ag.com).
REFERENCES
[1] https://www.wto.org/english/res_e/statis_e/daily_update_e/tariff_profiles/my_e.pdf
[2] Sales tax is imposed on imported goods but exemption is provided for selected goods, persons and raw materials under the Sales Tax(Goods Exempted from Tax) Order 2022 and Sales Tax (Persons Exempted from Payment of Tax) Order 2018
[3] Excise Duties Order 2022
[4] Article 1 of WTO’s General Agreement on Tariffs and Trade 1947
[5] https://home.treasury.gov/system/files/136/November-2024-FX-Report.pdf
[6] Based on importation laws, SIRIM and Construction Industry Development Board (CIDB) regulate technical standards and approvals for importation of certain goods in the non-construction and construction sectors respectively
[7] Department of Malaysian Quarantine and Inspection Services (MAQIS) regulates and issues import permits for importation of certain wildlife and animals.
[8] https://www.miti.gov.my/miti/resources/Media%20Release/[FINAL]_Malaysia_to_Continue_Engaging_with_US_Authorities_on_Fair_Trade_Solutions_2025-04-03.pdf
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