THE Government has welcomed indications that exports to the United States may ultimately face a lower tariff burden than previously feared, with Investment, Trade and Industry Minister (MITI) Minister Datuk Seri Johari Abdul Ghani describing the proposed 10 per cent tariff as a more favourable outcome than the earlier 19 per cent rate announced by Washington.
Johari said the current 10 per cent tariff imposed on Malaysian exports was a temporary measure that would expire after 150 days, after which a new tariff structure would take effect based on the outcome of ongoing negotiations between Kuala Lumpur and Washington.
The minister stressed that Malaysia’s exposure in the negotiations centres largely on market access and concerns related to forced labour, while issues involving environmental standards and government subsidies do not apply to the country.
"Malaysia does not practise forced labour, however, this issue arises because there are goods imported from third countries and we do not have a mechanism to verify whether forced labour was involved in their production," he told the New Straits Times.
The latest proposal emerged after a review by the Office of the United States Trade Representative, which assessed efforts by dozens of economies to curb trade involving goods linked to forced labour.
Under the proposal, Malaysia is among a group of economies facing a 10 per cent tariff, while a larger group of countries could be subjected to a higher rate of 12.5 per cent.
Johari clarified that the proposed 10 per cent tariff should not be interpreted as an additional levy on top of the temporary tariff currently being paid by Malaysian exporters.
"Not additional to what we are paying now. The 10 per cent tariff is under the temporary measure. My view is simple. All this only makes it less profitable for those exporting to the US.
"So, the prospect of reducing the tariff from 19 per cent to 10 per cent is better than before. When the 10 per cent tariff that we are paying during the 150-day period expires, this new 10 per cent tariff will replace it," he said.
Malaysia is continuing discussions with US authorities in an effort to present its position and secure recognition of its labour governance framework, despite the absence of legislation specifically addressing forced labour practices in third countries.
Johari acknowledged that exporters would bear the immediate impact of any tariff increase, as higher duties could translate into more expensive products and potentially weaker demand in the US market.
However, he argued that the revised proposal offered considerably more breathing space than the previously announced 19 per cent rate.
"When we export to the US, the tariff is ultimately paid by consumers there. If products become more expensive, the volume of orders may decline. However, essential goods will continue to be sold," he said.
While the government sees room for optimism, industry leaders have cautioned that the proposed measures could undermine Malaysia’s export competitiveness and restrict market access at a time when businesses are already grappling with rising operational costs.
Federation of Malaysian Manufacturers president Jacob Lee Chor Kok said the issue extends beyond labour standards and touches directly on export competitiveness, cross-border trade and access to one of Malaysia’s most important overseas markets.
"This proposal also sends a broader message that labour compliance, environmental, social and governance (ESG) requirements, and supply chain traceability are increasingly becoming important factors in determining market access," he said.
Jacob identified electrical and electronics products, machinery and equipment, medical devices, rubber products, furniture, textiles and apparel, as well as selected manufacturers in the chemicals, plastics and consumer goods sectors, among those likely to be most affected.
"The impact on each company will depend on the final tariff rate, the scope of products involved and the ability of businesses to absorb or pass on these additional costs to customers," he said.
Industry groups have urged Malaysian and US authorities to continue engagement to ensure the country’s efforts to strengthen labour standards, enforcement mechanisms and supply-chain governance are fully recognised before any final decision is made.
Small and medium-sized enterprises are expected to face particular challenges should the tariff proposal proceed.
SAMENTA president William Ng warned that many SMEs already operate on narrow margins due to higher labour and energy costs, making it difficult either to absorb additional expenses or transfer them to customers without losing competitiveness.
SME Association of Malaysia president Dr Chin Chee Seong similarly said many smaller businesses would struggle to withstand further cost increases amid fragile global economic conditions, geopolitical uncertainty and escalating business expenses.
He identified electronics, machinery, furniture, rubber products, plastics and supply-chain support industries as among the sectors most exposed to the proposed tariff regime.
"Our biggest concern is competitiveness. Malaysian SMEs are not only competing with local companies, but also with firms from Vietnam, Indonesia, Thailand, India and other regional economies.
"Higher tariffs will make Malaysian products more expensive and less attractive to buyers in the US, thereby reducing our competitiveness in the global market," he said.
Despite the concerns, economists believe opportunities remain for Malaysia to negotiate a more favourable outcome.
Bank Muamalat Malaysia Chief Economist Dr Mohd Afzanizam Abdul Rashid said tariff-related shocks have increasingly become a feature of global trade as the United States pursues policies aimed at strengthening domestic production.
"I believe there is still room for negotiations and the government can present the argument that forced labour issues are being addressed," he said.
Senior Universiti Teknologi MARA lecturer Mohamad Idham Md Razak described the potential impact as a short-term adjustment rather than a long-term structural setback.
He said Malaysia’s diversified export base and deep integration into global supply chains would help cushion the effects, while the tariff proposal could encourage further improvements in compliance standards and higher-value economic activities.
Idham also noted that Malaysia’s proposed tariff rate of 10 per cent remains lower than the 12.5 per cent rate being considered for several other economies, potentially providing a relative advantage for Malaysian exporters within affected supply chains.
"Overall, this situation is not about losing competitiveness, but rather about how Malaysia maintains a relatively stronger position while adapting to changing global trade conditions," he said. - June 4, 2026
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