Just about every major exporting economy was hit by U.S. President Donald Trump’s “Liberation Day” tariffs in April. Malaysia was no exception, getting a 24% “reciprocal tariff” on its exports to the U.S. which, while perhaps not as catastrophic a level as some of its neighbors, still posed a significant threat to the Southeast Asian economy.
Yet, Malaysia’s government took a more measured response to new U.S. protectionism. While Prime Minister Anwar Ibrahim criticized Trump’s decision, he also declined to take retaliatory action against the U.S., and tried to build a united Southeast Asian response to Washington’s moves.
“When Liberation Day hit, we didn’t panic,” Amir Hamzah Azizan, Malaysia’s Finance Minister II and YB Senator Datuk Seri, explained Monday during the Fortune Innovation Forum in Kuala Lumpur. “We weren’t going out there and saying ‘I’m going to reset my [growth] targets,” he said.
Instead, he suggested Malaysia’s broad trade ties to countries like Singapore, China, and the U.S. helped it withstand shocks from any one particular country. “The Malaysian economy has very deep diversification,” he explained, noting no market makes up more than a 30% share of the country’s exports.
In late October, the U.S. agreed to lower tariffs on Malaysian goods to 19%, in exchange for Malaysia addressing non-tariff barriers on U.S. goods and providing better market access. The Southeast Asian country also secured tariff exemptions for key exports like palm oil, rubber, aircraft parts, pharmaceuticals, and other key exports. And while Malaysia’s tariffs remain higher than the pre-Liberation Day baseline, relatively steeper tariffs on other economies like China could push supply chains to move to the Southeast Asian country.
Balancing the budget
Malaysia had a strong third quarter, with GDP growth of 5.2%, as well as a fiscal deficit of 3.8%, far lower than the 6.4% reported during the COVID pandemic. Malaysia turned to fiscal stimulus during those crisis years to stabilize the economy and protect vulnerable populations, yet Amir Hamzah called that level of spending unsustainable.
Instead, Malaysia needs to have both financial discipline and targeted investment whose returns flow back into society, in an approach the finance minister called “lifting the ceiling, lifting the floor.” Malaysia has made tough decisions to balance the budget, including raising some taxes and reducing diesel and fuel subsidies.
Still, Amir Hamzah noted that only the top 15% of Malaysians reported an increase in their electricity bills, which he characterized as being part of the country’s energy transition.
“We have a clear direction forward of how we are going to transition the economy into greener power,” said Amir Hamzah. This includes greater use of renewables such as solar and hydro as well as importing clean electricity through an expanded ASEAN power grid.
Malaysia will also encourage the country’s power-hungry data centers to operate more efficiently and use less water, he said.
Amir Hamzah credited his business experience for major oil companies like Shell and Petronas for a data-driven approach to solving problems. “What I bring to the table is an ability for us to actually look at raw data [and] start making decisions based on what we need to do,” he said.
Moving up the value chain
Malaysia is tightly integrated into several global supply chains for advanced manufacturing, including semiconductors, aviation, and automotive parts. The country has played this role since as early as the 1970s, when Intel set up its first non-U.S. chip plant in Penang.
“We are not at the top end of the chain…so we are not a threat to the aspirations of the U.S., who wants to bring a lot of things back home,” Amir Hamzah explained. “What we’re doing is [staying] in the middle…and increase the complexity of the economy, and as we do more of that, we strengthen the value chain.”
Malaysia now aims to move up the value chain, with forays into both chip design and advanced manufacturing. In March, Malaysia’s government announced that it would pay $250 million for some of Arm Holdings’ advanced chip blueprints, which local chip firms could use in their own designs.
Long term, Amir Hamzah said Malaysia was a reliable partner to global companies–including those from the U.S. and China. “Our proposition to both is to say we are key to your long-term supply chain,” he said. “We provide 80 million goods that you need in the long-term to support your growth.”
