PETALING JAYA: The re-escalation of the United States (US)-China trade war will have an impact on the Malaysian economy although most economists are hopeful that any recent developments in the dispute can be ironed out.
The latest episode in this long-running saga began when earlier this month, China announced sweeping export controls on rare earth elements (REEs), lithium battery technologies, and related production equipment, citing national security and non-proliferation obligations.
These measures, which take effect on Nov 8, require export licences even if Chinese-processed rare earths account for just 0.1% of a product’s value.
The restrictions also apply to products derived from Chinese technology in mining, smelting, magnet production, and recycling.
In retaliation, US President Donald Trump announced on Oct 10 a 100% tariff on all Chinese imports, effective Nov 1, raising total duties on many goods above 130%.
Head of dealing at Moomoo Malaysia Ken Low warned that while Malaysia is less exposed to rare earths than motor manufacturers, it is not immune to the latest threat of trade volatility.
He told StarBiz that China’s expanded export controls could raise input costs for equipment and materials in the next few quarters, and given that semiconductors make up a significant part of Malaysia’s exports, even modest increases in input prices or supply bottlenecks can affect margins.
“That said, demand remains firm, and recent purchasing managers’ data suggests manufacturing activity is stabilising. The near-term challenge is cost inflation, not a collapse in demand,” added Low.
MBSB Research pointed out that Malaysia, being a key player in the global semiconductor supply chain, faced potential headwinds from disruptions in REE supply.
It said while REE exports make up only 0.4% of Malaysia’s total exports, they account for 6.8% of mining exports, which fell nearly 10% year-on-year for the first nine months of 2025 amid weak demand.
Furthermore, the research unit warned that higher REE prices and material shortages could disrupt production across Malaysia’s electrical and electronics (E&E), automotive, and green energy sectors, particularly in the electric vehicle and chip industries.
However, the report also sees an opportunity for Malaysia to attract foreign direct investment (FDI) as global companies seek to de-risk their supply chains.
“Malaysia could gain from being a larger player in the REE sector. Therefore, the country would potentially benefit from the value-chain upgrading, hence, developing an alternative regional processing hub in Asia,” said MBSB Research.
MBSB is keeping its recommendations on defensive, domestic-oriented counters such as Fraser & Neave Holdings Bhd
, Aeon Co (M) Bhd, Leong Hup International Bhd and Padini Holdings Bhd.
Moomoo’s Low sees the data centre and digital infrastructure sector, on top of semiconductors, as beneficiaries from the US-China decoupling, fuelled by hyperscaler investment in Johor and the Klang Valley.
He pointed out that logistics and industrial park operators will also stand to gain, as global firms reroute supply chains through South-East Asia.
Conversely, he said solar module exporters selling into the United States market are at risk due to recent tariff rulings, as are auto component makers dependent on Chinese rare earths or graphite who will also face cost pressures.
Professor of economics at Sunway University Dr Yeah Kim Leng, while echoing the cautious sentiment, pointed out that the curbs on China’s REE are targeted at military use, which means industries involved in dual use products may be affected.
However, the majority of semiconductor firms in Malaysia, which cover largely middle and lower end semiconductors and devices, are unlikely to be disrupted.
“Nonetheless, affected firms will have to contend with higher input costs caused by supply shortages,” he added.
Commenting on whether the country can take advantage of the minor escalation in the trade spat, Yeah told StarBiz Malaysia will continue to benefit from this trend, but competition in the region is intense.
To increase its share, Malaysia would need to strengthen its attractiveness as the country of choice for high value and high technology investments, he said, and measures to ensure supply of skilled workers and STEM (science, technology, engineering and mathematics) talents will be crucial to enhance the country’s appeal to high value investors.
Economist Doris Liew sees the trade threat as two-fold, emphasising that the direct impact of US export controls on semiconductors is limited since the country is primarily engaged in downstream assembly, testing, and packaging.
However, she noted that any disruption to upstream suppliers, especially those dependent on Chinese inputs, will indirectly affect production volumes.
More importantly, she said: “While near-term cost implications remain contained, Malaysia’s longer-term ambition to move up the value chain could face pressure as input costs rise and technology access becomes more constrained.”
Still, Liew opined that Malaysia’s existing ecosystem provides a strong foundation to attract FDI relocating from China, especially in the country’s established semiconductor and E&E industries, competitive incentives, and generally accommodative investment climate.
While new industrial clusters have historically driven growth, she cautioned that capacity constraints are emerging, with Penang’s industrial zones nearing saturation, pushing new investors toward areas such as the Kulim Hi-Tech Park.
“To capture the next wave of investment, Malaysia must accelerate the development of additional industrial clusters with reliable infrastructure, logistics, and talent pipelines.
“Agility in planning and execution will determine whether Malaysia can secure its position in the new global supply chain map,” she said.
Meanwhile, an economist with a foreign brokerage said the October move and counter move by China and the United States respectively signalled serious re-fragmentation of the global trading system, especially across high-technology and green-industrial supply chains.
She said China’s new export controls on REEs and lithium battery technology directly affect the semiconductor, EV and defence industries — sectors that underpin the next phase of industrial growth.
The economist added that Malaysia sits squarely in the global semiconductor value chain, mainly in back-end testing, assembly, and advanced packaging, exporting around RM500bil in E&E products annually, with over 60% of total exports tied to the global chip demand.
“The REE curbs will likely disrupt production schedules for chipmaking equipment that depends on REE-derived components, raise material costs in the E&E and precision manufacturing sectors and slow export growth as global semiconductor producers cut or delay orders in response to supply disruptions.
“While Malaysia’s direct REE exports are small, making up 0.4% of total exports, the indirect exposure via semiconductor exports is significant.
“This could shave 0.2 to 0.4 percentage points off gross domestic product growth in 2026 if the restrictions persist,” she said.
That said, the economist remarked that Malaysia’s diversified export base and relatively strong domestic demand can cushion some of the downside risk.
Economist Geoffrey Williams, meanwhile, is optimistic that these recent spat would not develop into a more prolonged dispute, and as such sees no significant impact they would have on Malaysia’s semiconductor sector.
He said that the new restrictions from both sides will not reshape the global supply-chain, despite acknowledging that they would cause short-term disruption, uncertainty and increase costs, the possibility of delays and investment volatility.
“Malaysia will not realistically attract foreign direct investments because of this, despite the fact that existing foreign players here could see a short-term boost. However, we do not believe there will be any structural improvements.
“Any Malaysian exporters who could possibly benefit from the US-China trade tensions will already be doing so because this is not a new development.
“These disputes are now priced into most deals and investment plans,” added Williams.
