Malaysia urged to bolster semiconductor ecosystem to shield itself from potential demand shocks

The Sun

3 days ago

PETALING JAYA: With the United States still investigating whether to impose tariffs on semiconductors under Section 232 of the Trade Expansion Act of 1962, Malaysia is urged to bolster its semiconductor ecosystem to shield itself from any potential demand shocks.
Although no tariffs have been formally introduced, the Malaysia Semiconductor Industry Association (MSIA) warned that downstream repercussions from such a move could ripple through local supply chains, particularly in manufacturing-intensive segments.
'If US tariffs are imposed arising from the investigation, manufacturing-intensive semiconductor segments will likely face the most immediate pressure,' MSIA executive director Andrew Chan Yik Hong told SunBiz in a written response.
Chan stressed that Malaysia must consider proactive policy buffers to maintain its global competitiveness if geopolitical tensions escalate.
'Malaysia must continue to engage constructively with U.S. trade counterparts to ensure we remain a trusted, neutral and strategic partner in the global chip ecosystem,' he said.
'But more importantly, we must double down on what we can control.'
Despite growing geopolitical headwinds, Malaysia's electrical and electronics (E&E) sector, of which semiconductors are a major component, remains robust.
From January to May 2025, E&E exports surged by 20% year-on-year, far outperforming the country's total export growth of 5.5% during the same period.
'This underscores the resilience and competitiveness of our semiconductor ecosystem,' Chan noted.
However, he cautioned that the sector's exposure to global demand fluctuations remains a critical vulnerability.
A major shift in US trade policy could trigger ripple effects across Malaysia's electronics manufacturing, testing and packaging industries, key pillars of its export economy.
'Semiconductors are the building blocks of modern life. A slowdown in global demand, whether due to tariffs or macroeconomic uncertainty, would inevitably affect Malaysia's semiconductor output,' Chan said.
He outlined three major contingency areas that Malaysia must invest in to insulate itself from future shocks and position itself as a long-term chip powerhouse – talent development, ecosystem resilience and supply chain agility.
'We must develop world-class engineers, operators and innovators through deep industry-academic collaboration and remain the most attractive hub for semiconductor design, manufacturing and advanced packaging in the region.
'Malaysia must also expand and diversify upstream and downstream capabilities to absorb global shocks more effectively,' Chan said.
Malaysia currently plays a key role in the back-end and increasingly mid-stream segments of the global chip supply chain.
While the nation lacks front-end fabrication capacity at scale, its strong foothold in testing, assembly and advanced packaging positions it as a critical node in the Asia-Pacific semiconductor landscape.
Chan pointed to the RM319 billion in approved E&E investments between 2021 and 2024 as a sign that Malaysia is at a strategic sweet spot.
'We must capitalise on this with the right policies, long-term vision and execution,' he said. 'Malaysia can emerge stronger, not just weathering global shifts, but positioning itself as a semiconductor powerhouse for the next decade.'
While US tariff decisions remain pending, Chan's message is clear: Malaysia must prepare now, not react later.
'The global semiconductor race is no longer just about who can produce the most chips. It's about who can adapt fastest and Malaysia has what it takes to lead, if we stay focused,' he said.
The US launched a Section 232 investigation in April to assess whether semiconductor imports pose a national security threat, potentially paving the way for tariffs. While no tariffs are in place yet, the move signals rising protectionism amid geopolitical tensions.
Malaysia, which holds 13% of the global chip packaging and testing market, could face ripple effects if global demand shifts. As a key player in the back-end and midstream supply chain, Malaysia has seen over RM319 billion in E&E investments since 2021.
The country is positioning itself as a resilient, strategic semiconductor hub in the face of global trade realignments.