Malaysia tightens domestic oversight on US chip movements as tariffs negotiation tactic
- Malaysia has moved to tighten oversight on the movement of high-end chips from the United States by imposing a strategic trade permit requirement, in the hope of lowering the tariffs imposed by US President Donald Trump from Aug 1.
Mr Trump on July 8 sent a letter to Malaysia's King Sultan Ibrahim Iskandar and Prime Minister Anwar Ibrahim, formally notifying them of a
25 per cent tariff on Malaysian exports – a percentage point higher than the 24 per cent announced in April 2025.
Industry players and analysts view Kuala Lumpur's plan on the domestic movements of the high-end chips as a concession to Washington aimed at preserving its trade ties with the US – Malaysia's second-largest trading partner after China, and its top export destination, especially for semiconductors and electronic goods.
Malaysia recorded a trade surplus of US$24.8 billion (S$31.77 billion) with the US in 2024.
Malaysia's Ministry of Investment, Trade and Industry on July 14 invoked the Strategic Trade Act 2010 (STA 2010) – regulates the export, transit, transhipment and brokering of sensitive goods to prevent their use in weapons of mass destruction (WMDs) – to compel individuals or companies to notify the authorities at least 30 days before the cross-border movement of these chips if there is a possibility that they may be used for a restricted activity.
'This initiative serves to close regulatory gaps while Malaysia undertakes further review on the inclusion of high-performance AI chips of US origin into the strategic item listing (SIL) of the STA 2010,' the ministry's statement said.
Nuclear materials, electronics, computers, telecommunication and information security goods that may facilitate the development of WMDs are regulated under the SIL.
Singapore's Home Affairs and Law Minister K Shanmugam on May 3 revealed that computer servers that might contain Nvidia chips had been exported to Malaysia from the Republic, and
possibly to an unknown final destination .
Singapore had come under the spotlight in a Washington investigation in February into whether Chinese start-up DeepSeek had circumvented US
restrictions on advanced Nvidia chips by buying them from third parties in other countries, including the Republic.
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Kuala Lumpur's move to enforce the new permit requirement for high-end chips signals the country's commitment to curbing activities prohibited by Washington, said Malaysia Semiconductor Industry Association president Wong Siew Hai.
'It's another reinforcement from the government to show its dead seriousness in complying with US requirements. We want to position Malaysia as a trusted nation for handling high-end chips,' he told The Straits Times.
Datuk Wong noted that Malaysia's semiconductor industry, which accounted for over 7 per cent of global export market share in 2024, has a longstanding track record of compliance, including adhering to US export controls that prohibit shipments to sanctioned countries for more than four decades.
While acknowledging that high-end chips are not directly linked to WMD, academic Dr Lam Choong Wah said Malaysia is taking US concerns over potential misuse of the technology seriously.
'Regulating these chips under the STA 2010 shows that Malaysia is willing to align with Washington's rules. Hopefully, Washington may consider reducing the tariff by a few percentage points,' Dr Lam, the deputy head of Department of International and Strategic Studies at the University of Malaya told ST.
However, senior lecturer Dr Tee Chwee Ming of Monash University Malaysia believed the restriction on AI chips is primarily aimed at preventing Malaysian companies from being blacklisted by US firms, which could disrupt the AI chip supply chain and undermine Malaysia's ambition to become a global data centre hub.
Dr Tee added that to secure more favourable tariff terms, Kuala Lumpur may be expected to move away from certain domestic policies the US has cited as trade barriers – such as pro-Bumiputera preferences in government procurement and halal certification requirements – as well as to reduce the involvement of Chinese firms in its semiconductor supply chain.
'The first two are red lines for the Malaysian government, while the last is an impossible request to fulfil,' he told ST.
Minister of Investment, Trade and Industry Tengku Zafrul Aziz on July 14 said Malaysia remains open to US agricultural exports, provided they meet local regulatory requirements.
But areas such as 'digital commerce, government procurement, and standards related to health or technical matters' are considered red lines and are unlikely to be open to negotiation, he noted.
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