Limited impact from latest US tariffs

Jul 28, 2026

6 min read

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PETALING JAYA: The latest round of tariffs imposed by the United States is seen to be less disruptive to Malaysia’s economy than initially feared, with economists saying the new 10% Section 301 forced labour tariff will likely have only a manageable near-term effect on exports and growth.

The tariff is lower than the previously announced 19% reciprocal rate and places Malaysia in a relatively more favourable position than several other affected economies facing a 12.5% levy.

However, experts also caution Malaysia should strengthen supply chain traceability, labour safeguards and industrial competitiveness as US trade policy continues to evolve.

IPPFA Sdn Bhd director of investment strategy and country economist Mohd Sedek Jantan said the firm is maintaining its 2026 gross domestic product (GDP) growth forecast of between 4.6% and 4.8%, pending its next quarterly data update.

“Based on the information currently available, we do not expect the 10% Section 301 forced labour tariff to have a material negative impact on Malaysia’s export performance or overall economic growth,” he told StarBiz.

Mohd Sedek said the latest measure is less disruptive than the earlier 19% reciprocal tariff because the Section 301 tariff has effectively superseded it.

Malaysia also remains relatively better positioned than many other affected economies subjected to a 12.5% tariff.

“This allows our exporters to preserve a degree of cost competitiveness in the United States market,” he said.

The difference in tariff rates could become particularly important for products competing directly with exports from countries facing higher duties.

Nevertheless, he said the impact should continue to be monitored for possible changes in global supply chains, export orders and investment flows.

“While the short-term macroeconomic impact appears manageable, the longer-term implications will depend on how trade policy evolves,” he said.

He noted Malaysia’s ability to minimise the effects would also depend on how effectively the country strengthens its competitiveness through higher productivity, greater value-added manufacturing and more resilient supply chains.

These structural improvements would help exporters absorb external shocks and preserve their position in key markets.

It would also reduce the economy’s vulnerability to sudden changes in trade policy and geopolitical tensions.

Socio-Economic Research Centre executive director Lee Heng Guie said the US action concerns imported inputs linked to forced labour and should not be interpreted as evidence that Malaysia itself practises forced labour.

He said the Investment, Trade and Industry Ministry has acknowledged a legal gap identified in the United States forced labour tariff proposal.

Although Malaysia already has domestic laws prohibiting forced labour, it does not currently have an import prohibition law to screen goods and raw materials produced using such practices.

“This finding does not mean Malaysia practises forced labour and is not a reflection of the labour conditions in Malaysia,” Lee told StarBiz.

Malaysia has already taken steps to strengthen domestic labour protections, including introducing provisions on forced labour under the Employment Act 1955, which came into effect in 2023.

Also, the Anti-Trafficking in Persons and Anti-Smuggling of Migrants Act 2007 also criminalises human trafficking and all forms of forced labour.

Lee said Malaysia should continue presenting a formal case against the tariffs while pursuing exemptions through consultation and bilateral engagement with the Office of the United States Trade Representative (USTR).

“Malaysia could actively engage with the USTR through bilateral negotiations and existing consultation channels to seek tariff reductions or exemptions for products that can be demonstrated as free from forced labour risks,” he said.

This approach would require close coordination between government agencies, manufacturers, suppliers and exporters.

Given the concern surrounding imported inputs from third countries, Lee said the government and industry should collaborate on verification and traceability mechanisms.

Such mechanisms would allow companies to establish that imported raw materials and components are not linked to forced labour practices.

“Companies have to rely heavily on advanced supply chain mapping, third- party audits and blockchain or digital traceability tools to ensure their raw materials and finished goods are entirely free of forced labour,” he said.

Meanwhile, CIMB Research said the latest Section 301 action has replaced the temporary Section 122 tariff without materially changing Malaysia’s overall trade exposure.

The USTR imposed tariffs of either 10% or 12.5% from July 24 after completing its investigation into forced labour import prohibitions.

The announcement coincided with the scheduled expiry of the 10% Section 122 tariff, which had been imposed for a maximum of 150 days after the United States Supreme Court struck down tariffs introduced under the International Emergency Economic Powers Act.

Malaysia and Indonesia were assigned the lower 10% tariff because of commitments to introduce forced labour import prohibitions under their respective agreements on reciprocal trade.

Thailand and Singapore face the higher 12.5% rate because comparable commitments were not cited.

Malaysia, Indonesia, Bangladesh and Cambodia also received a three-year tariff-rate quota for textile and apparel exports.

The quota will allow a specified volume of goods to enter without the Section 301 duty, based on purchases of US textiles and cotton.

CIMB Research said the exemptions under Section 301 broadly mirror those previously granted under Section 122.

The exemptions cover goods where tariffs could cause domestic supply shortages, wider economic disruption or insufficient availability from US producers and alternative suppliers.

Products already subject to Section 232 tariffs were also excluded.

Malaysia received country-specific exemptions for palm oil, palm kernel oil, oleochemicals, wood products and several smaller product categories.

As a result, CIMB Research estimates that the proportion of Malaysia’s exports to the United States subject to the Section 301 tariff has declined to 31.9% from 33% under Section 122.

About RM3.3bil of exports are estimated to have moved outside the tariff’s scope, it noted.

Malaysia’s trade-weighted effective tariff rate has consequently fallen marginally to 5.1% from 5.2%, it said.

“The effective rate falls below the 10% headline rate as only around one-third of exports to the United States is subject to the Section 301 tariff,” the research house said.

Most of the remainder are either exempt or already covered by Section 232 duties.

But CIMB Research cautioned the current outcome may not represent the final tariff position by the United States since a separate Section 301 investigation into structural excess capacity across 16 economies, including Malaysia, remains ongoing.

Article By DANIEL KHOO

Source: Limited impact from latest US tariffs (Tuesday, 28 Jul 2026). The Star. Retrieved from https://www.thestar.com.my/business/business-news/2026/07/28/limited-impact-from-latest-us-tariffs

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Limited impact from latest US tariffs

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