BY TENGKU NOOR SHAMSIAH TENGKU ABDULLAH
KUALA LUMPUR, 4 August 2026 — More than a week after Malaysia’s 10% US tariff took effect, attention is shifting from the headline rate to the Malaysian products actually covered, the burden of proving origin and the potential consequences for domestic suppliers and employment.
The Section 301 duty succeeded Washington’s temporary 10% global import surcharge on 24 July. Although the headline rate remained unchanged for Malaysia, the new measure has a different legal basis, policy justification and set of product exemptions.
Adjunct Professor Ir. Dr Mohd Shahreen Zainooreen Madros of the Universiti Kebangsaan Malaysia Graduate School of Business said the largest direct financial impact would fall on multinational manufacturers, particularly those operating within Malaysia’s electrical and electronics sector.
The effects could spread to Malaysian suppliers and workers if higher costs cause American customers to reduce orders, demand lower prices or reconsider sourcing arrangements.
Shahreen said the secondary consequences could include weaker demand and potential job losses if the economy slows. Local companies supporting the E&E sector would also be affected.
“Ultimately everyone loses,” he told TNS News.
Shahreen is a former chief executive officer of the Malaysia External Trade Development Corporation, or MATRADE.
What changed on 24 July?
The temporary 10% global import surcharge imposed by Washington under Section 122 of the Trade Act of 1974 expired at 12:01 a.m. Eastern time on 24 July.
At the same time, duties imposed under Section 301 of the Act took effect following US investigations into whether 60 economies had prohibited and effectively prevented imports produced wholly or partly using forced labour.
Malaysia was placed among 17 economies assigned a 10% rate. Most of the remaining economies investigated were assigned a higher rate of 12.5%.
The United States Trade Representative said Malaysia qualified for the lower band because it had committed, under its Agreement on Reciprocal Trade with Washington, to introduce and enforce restrictions on imports linked to forced labour.
The Section 301 duty did not accumulate on top of the expired temporary surcharge. It succeeded that measure when the Section 122 authority reached its statutory time limit.
In US customs terms, however, the 10% is an additional Section 301 duty. It is not necessarily the total tariff payable on every Malaysian product because ordinary customs duties and separate sector-specific measures may still apply.
Products already subject to US Section 232 tariffs are excluded from the new Section 301 action. Other exemptions cover selected raw materials, products considered important to the US economy and goods for which Washington determined that the duty would not advance its stated policy objective.
The impact on individual exporters therefore depends on their product classification, existing tariff treatment and whether their goods are included in the exemption schedules. USTR final notice.
Effective exposure is below 10%
The headline rate does not mean every Malaysian export to the US is subject to the new duty.
CIMB Research estimated that approximately 31.9% of Malaysia’s exports to the US are covered by the Section 301 tariff, down from an estimated 33% under the previous temporary measure.
Based on that product coverage, Malaysia’s trade-weighted effective tariff rate was estimated at 5.1%, compared with 5.2% under the Section 122 surcharge.
The exemptions reportedly include palm oil, palm kernel oil, oleochemicals, wood products and several smaller product categories. Goods already covered by Section 232 measures are also outside the new action.
The estimates indicate that exporters should examine product-level classifications instead of assuming that the 10% headline rate applies uniformly across entire industries.
The present outcome may not be Washington’s final tariff position. Malaysia is also among 16 economies involved in a separate Section 301 investigation into alleged structural excess industrial capacity.
The Ministry of Investment, Trade and Industry said it would continue engaging Washington and update businesses once USTR determines whether further action will be taken under that investigation.
Prime Minister Datuk Seri Anwar Ibrahim has also said Malaysia will continue negotiating with the US over any aspects of the tariff arrangements it considers unsatisfactory.
A future concession for textiles
Washington has directed USTR to establish tariff-rate quotas for selected textiles and apparel from Malaysia, Bangladesh, Cambodia and Indonesia.
Once implemented, the mechanism will allow specified volumes of qualifying textiles and apparel to enter the US without the additional Section 301 duty. Access will be linked to each exporting country’s use of American cotton or textile inputs.
The quotas are intended to operate for an initial period of three years. USTR has yet to establish their detailed product coverage, volume or effective date.
Until the mechanism is implemented, the 10% duty applies to the Malaysian textile and apparel products intended to be covered by the quotas.
This creates a cost and compliance question for exporters, particularly companies sourcing fabric, yarn or other inputs from several countries.
E&E exposure is product-specific
Electrical and electronic products form the largest component of Malaysia’s exports, with much of the sector’s activity driven by multinational companies.
“While E&E is the biggest contributor, it is also dominated by foreign MNCs,” Shahreen said.
The final exemptions mean that E&E exposure cannot be assessed uniformly across the entire industry. The impact depends on the relevant US Harmonised Tariff Schedule classification and whether the product is exempt or already covered by another tariff regime.
For products subject to the new duty, the largest companies would face the greatest direct impact in absolute terms. Malaysia’s wider exposure, however, extends beyond multinational manufacturers shipping components or finished products to the US.
Local companies provide engineering, packaging, testing, logistics, maintenance and other services to major manufacturers. A reduction in orders or production could affect businesses that do not export directly to the American market.
Manufacturers could also seek price concessions from Malaysian suppliers to offset part of the tariff cost.
Trade remained strong before implementation
Malaysia entered the new tariff period with strong export momentum.
During the first five months of 2026, total trade expanded by 18.3% to RM1.455 trillion compared with the corresponding period of 2025. Exports increased by 24.3% to RM793.84 billion, while imports rose by 11.8% to RM661.07 billion, according to MATRADE.
Trade with the US climbed by 16.3% to RM185.19 billion over the same period. Malaysian exports to the US increased by 45.5% to RM138.65 billion, supported by demand for E&E products, optical and scientific equipment, and metal manufactures.
E&E exports overall increased by 39.7% to RM382.89 billion during the January-to-May period.
These figures predate the implementation of the new Section 301 duty and cannot yet show its full effect on orders, production or investment.
Shahreen cautioned that stronger trade figures should not be treated as proof that Malaysia is insulated from the longer-term consequences of US trade restrictions.
He believes some of the increase may reflect short-term adjustments in international supply chains rather than a permanent improvement in Malaysia’s competitiveness.
Origin documentation becomes critical
The tariff itself is only one part of an increasingly complicated trading environment.
Exporters must also prepare for closer scrutiny of rules of origin, transshipment and the sources of components incorporated into products assembled or processed in Malaysia.
Rules of origin determine whether goods genuinely qualify as Malaysian products. Transshipment concerns arise when products originating in one country are routed through another to avoid restrictions or higher tariffs.
Malaysian manufacturers may consequently be required to maintain detailed records identifying their suppliers, production processes, component origins and the value added within Malaysia.
The burden could be particularly challenging for smaller companies operating within multinational supply chains, even when they do not sell directly to US customers.
Shahreen said Malaysian ministries and trade associations had been engaging US authorities, working with industry participants and helping businesses explore alternative markets.
Nevertheless, compliance cannot be treated as a one-off exercise.
“One can never be fully prepared for the constantly changing requirements,” he said.
Continued cooperation between government agencies, trade organisations and industry participants would therefore be essential.
What assistance do exporters need?
Drawing on his experience leading MATRADE, Shahreen said the government should provide financial and other forms of assistance to help important industries withstand external disruption.
Support should prioritise industries important to Malaysia’s future and companies that sustain significant employment.
In the immediate term, businesses may require help determining how the tariff applies to individual products, reviewing supply chains, strengthening origin documentation and identifying alternative export markets.
Smaller exporters may also need technical assistance to interpret US customs requirements and meet more demanding compliance standards.
However, Shahreen cautioned that short-term relief cannot replace improvements in Malaysia’s underlying industrial capabilities.
Temporary compromises, he said, should not distract policymakers from the continuous development of those capabilities.
For a country of approximately 34 million people, competing through large numbers of low-paid jobs is not a sustainable development strategy.
“We need a clear plan to create more future jobs towards high technology sectors, and that requires long-term effort,” he said.
The immediate question for exporters is how to manage the products exposed to the Section 301 duty. The larger test for Malaysia is whether its industries can strengthen local value creation, improve supply-chain transparency and protect skilled employment in an increasingly restrictive trading environment.
As Shahreen put it: “Our real strength is based on what value we have to offer.”
- TNS NEWS