PETALING JAYA: The latest shake-up in US import tariff policy has injected fresh uncertainty into global trade.
As it stands, Malaysian exports to the United States may now face a 15% duty, down from 19% earlier, following an agreement between the two governments.
The lower rate is in line with the universal rate imposed on all countries under US President Donald Trump’s latest tariff regime, implemented using Section 122 legislation.
The move follows the US Supreme Court’s decision to strike down Trump’s sweeping reciprocal import duties imposed under the International Emergency Economic Powers Act (IEEPA).
In the immediate aftermath, US Trade Representative (USTR) Jamieson Greer told CBS that tariff arrangements already negotiated with countries – including Malaysia – would remain in place, seeking to distinguish those agreements from the proposed 15% universal levy.
However, a day later, US Customs and Border Protection said it would halt the collection of tariffs imposed under the IEEPA, deactivating all related tariff codes effective today, according to its message to shippers.
The situation remains highly fluid, with all eyes on what Trump will do in the coming days – particularly over the next 150 days, as Section 122 carries a maximum duration of 150 days and thereafter will require congressional approval for any extension.
iFAST Capital research analyst Kevin Khaw Khai Sheng said the shock stemmed less from the US Supreme Court’s decision – as the judiciary is expected to act independently – and more from Trump’s swift response in raising global tariffs to 15% from 10%, just a day after the court’s ruling struck down a broad swathe of his trade agenda.
“Such a move underscores his aggressive stance and insistence on using tariffs as a trade tool. It also highlights a high level of unpredictability surrounding his next steps,” he told StarBiz.
To be sure, the Supreme Court’s decision closed only one avenue for Trump to unilaterally impose tariffs.
Apart from Section 122, there is also a host of other tools, such as Section 232 (sector-specific tariffs), Section 301 (targeting unfair trade practices like intellectual property theft), and Section 338 (targeting countries that discriminate against US commerce).
Tariffs under Section 232 and 301 both require a period of investigation by the Commerce Department or USTR before they can be put into effect.
Intensified use of Section 232 is expected, especially as leverage in trade negotiations with countries still finalising trade agreements with the United States.
Thus far, Trump has imposed Section 232 tariffs on sectors such as steel, aluminium, automobiles, copper, timber, and advanced semiconductors.
Several other Section 232 investigations launched last year – covering pharmaceuticals, medical supplies and equipment, wind turbines and others – remain underway.
“The United States is likely to continue using these surcharges as leverage to pressure countries into bilateral concessions. Those that have yet to secure a full trade deal within the next 150 days may face more targeted and higher duties once the Section 122 period expires.
“The silver lining is the (temporary) relief of a 19% to 15% tax rate might increase the attractiveness of Malaysia’s products in the US market, at least until the next deal or policy development is announced,” Khaw said.
IPPFA Sdn Bhd director of investment strategy and country economist Mohd Sedek Jantan said the Supreme Court’s decision materially reduces the tail risk of abrupt, economy-wide trade shocks, but it does not fully restore predictability to US trade policy.
“What the ruling does is re-impose institutional and legal constraints on the most aggressive form of unilateral tariff action, forcing the US administration to operate within narrower, time-bound and more procedurally complex authorities, such as Section 122. For the region, this shifts the risk profile from sudden escalation to prolonged uncertainty,” he said.
Mohd Sedek said the implications for Putrajaya are best described as “stability without stimulus”. He added that export access is not materially altered, trade agreements remain intact, and there is no requirement for renegotiation or new commitments.
“The primary economic burden of such tariffs is borne domestically in the United States through higher prices and lower efficiency, rather than through sharp export collapses abroad.
“As such, for Malaysia, the ruling improves planning visibility at the margin but does not fundamentally change trade or investment fundamentals. A wait-and-see posture, rather than policy recalibration, remains appropriate,” he said.
That said, MUFG Research opined countries which were beneficiaries have trade deals, such as Singapore, have come out slightly worse off in the interim, while those such as China and Brazil, which have not finalised full trade deals, have fared better.
Countries like Singapore, the United Kingdom and Australia were previously subject to a 10% tariff rate under the IEEPA and may now have to contend with a higher rate.
MUFG Research noted that countries such as Brazil and China will likely see effective tariffs reduced by around 7% to 16% over the next few months.
As such, it believes the tariff differential between other Asian exporters and China has narrowed in the interim, reducing the incentive to reroute exports to the United States at the margin.
While the United States is likely to use Section 232 as leverage, China’s bargaining power ahead of the meeting between Trump and President Xi Jinping on March 31 is also set to strengthen.
UOB Research noted that China seemed to be at a relative advantage, with the 15% rate more benign than the existing tariffs imposed under IEEPA, which also include a 10% fentanyl-related tariff.
The Supreme Court’s decision may complicate Trump’s push for Beijing to buy large quantities of US soybeans, Boeing aircraft and energy exports, given that his ability to deploy tariffs at will is now constrained.
All this supports the narrative of a narrowing tariff gap between China and other Asian exporters.
This raises questions about the viability of the China+1 initiative, of which Malaysia has been a beneficiary, and the country’s overall export volumes going forward.
Mohd Sedek, however, said while such reasoning has mechanical validity, it is analytically incomplete because it relies on a static, price-only view of trade, whereas supply-chain decisions are inherently dynamic, forward-looking, and risk-adjusted. He said the narrowing of tariff differentials may reduce opportunistic, margin-driven re-routing at the edges of the supply chain, but it does not reverse the structural diversification trend.
“Over the past five years, the China+1 strategy has evolved away from tariff minimisation toward risk diversification under deep uncertainty.
“Firms are responding not just to tariffs, but to a broader set of structural risks. Temporary tariff convergence does not materially alter this.
“Malaysia’s strength lies in electrical and electronics and semiconductor-related activities, which are embedded in capital-intensive, qualification-heavy production networks.
“In these sectors, supplier switching is costly and slow due to certification requirements, process integration, and ecosystem dependencies. As such, temporary tariff equalisation has limited influence on location decisions once investments are sunk,” he said.
Sunway University economics professor Dr Yeah Kim Leng said China, which previously faced massive trade diversion and reciprocal tariffs exceeding 60% for some goods, will now fall under the 15% rate.
After the 150-day Section 122 window, the narrowed differentials could reduce Malaysia’s tariff advantage and slow down the China+1 diversification trend.
Sector-wise, Khaw maintained that the local semiconductor and electronics industry remains the most vulnerable due to Section 232 tariffs. Even so, he said further downside risks to the overall economy are limited.
“We already saw and priced in the worst-case scenarios when the tariff rate imposed on the country was at 19%. Hence, it is unlikely that the situation – even as more developments unfold in the coming days – will worsen beyond that, particularly as the global tariff rate is now 15%.
“From here, it is more likely to either improve or remain at current levels, rather than deteriorate further in terms of the trade relationship, barring extreme events such as war,” he said.
