Kuala Lumpur, July 8, 2025 – The Federation of Malaysian Manufacturing (FMM) expresses deep concern over the latest announcement under the United States’ (US) reciprocal tariffs, which will see a 25 percent blanket tariff imposed on all Malaysian products entering the US market effective August 1, 2025. This announcement comes as a surprise given the intensive and ongoing negotiations between the Malaysian Government and the United States, coordinated by the Ministry of Investment, Trade and Industry (MITI) under the National Geoeconomic Command Centre (NGCC) framework. The manufacturing sector is already reeling from the earlier 10 percent US tariff and escalating domestic cost pressures, including the expanded Sales and Service Tax and electricity base tariff revisions which will most impact the high voltage customers. This latest escalation risks further destabilising an already fragile industrial landscape, severely impacting export competitiveness and placing additional strain on manufacturers.
Feedback from manufacturers during the initial 10 percent US reciprocal tariff implementation already pointed to serious concerns over the sustainability of export operations, with many warning that further tariff hikes would result in significant declines in shipments and severe erosion of profit margins. The newly announced 25 percent blanket tariff, if implemented as scheduled on August 1, 2025, is expected to intensify these pressures across the board, particularly for companies operating on thin margins or bound by long-term supply contracts. While some critical products such as semiconductors are exempted, the broader ecosystem that supports the semiconductor industry, including suppliers of parts, machinery and supporting services, remains exposed to significant disruption. The vast majority of Malaysian exports including rubber products, textiles, furniture and industrial components will be adversely affected, placing added strain on companies already grappling with rising input costs and market uncertainty.
FMM is particularly concerned by Malaysia’s relative disadvantage in the evolving tariff landscape. Although Malaysia’s initial proposed 24 percent tariff in April 2025 was lower than peers such as Cambodia, Vietnam and Thailand, the new blanket 25 percent rate places Malaysia in a more punitive position, especially as Vietnam has since secured a bilateral arrangement reducing its rate to 20 percent. Compounding the issue, other ASEAN members such as Singapore, Brunei and the Philippines were not named in the latest tariff wave. These disparities risk diverting US sourcing to lower tariff alternatives and eroding Malaysia’s market share. Malaysia’s integral role in US and global high technology supply chains, particularly in electrical and electronics, medical devices and precision engineering, must be strongly asserted in negotiations. Our compliance record, investment linkages and value-added contribution should form the basis for seeking targeted relief or differentiated treatment to prevent long term structural damage to Malaysia’s export position.
Given these mounting risks and Malaysia’s increasingly disadvantaged position compared to regional peers, FMM urges the Government to immediately intensify its diplomatic and policy response. It is critical that these efforts be escalated to secure an immediate deferral of the August 1, 2025 implementation and work toward a longer-term exemption or rollback. Malaysia’s case must be urgently and clearly elevated at the highest levels of US policymaking, supported by strong data and strategic positioning that highlight our value to US supply chains. At the same time, domestic countermeasures must be rolled out to support affected industries, including targeted financial relief, strengthened export promotion, and fast-tracked structural reforms to enhance cost efficiency and competitiveness. A coordinated whole-of-government approach is essential to protect Malaysia’s manufacturing base, preserve jobs, and maintain investor confidence during this critical period.
FMM calls for urgent policy adjustments to address the sharp cost burdens and structural inefficiencies now weighing heavily on Malaysian manufacturers following the expanded scope of the Sales and Service Tax (SST) implemented on July 1, 2025. Despite repeated industry appeals for a deferment and a more comprehensive tax reform approach, the SST expansion proceeded and manufacturers are now grappling with its full impact. The absence of a business-to-business (B2B) exemption mechanism means service tax is imposed on critical production-related services such as logistics, warehousing, leasing, and contract processing resulting in cascading tax effects that not only inflate production costs but ultimately pass through to consumers. This undermines tax neutrality, distorts input choices, and reduces Malaysia’s industrial and export competitiveness. FMM strongly urges the Government to immediately review and reform the SST structure by introducing aB2B service tax exemption for licensed manufacturers, automatically applied upon provision of a valid Sales Tax licence number. The long-term solution must be the creation of a tax framework that fully removes the tax-on-tax element and restores neutrality across the manufacturing supply chain.
Beyond immediate tax reform, Malaysia must urgently strengthen its trade competitiveness and domestic resilience through a coordinated package of structural interventions. To support exporters in weathering current shocks and repositioning for growth, FMM recommends enhancing export facilitation by increasing the Market Development Grant ceiling, removing MATRADE’s administrative fees for trade missions led by associations, and providing targeted incentives for branding, certification, and digital market access. In parallel, Malaysia must embrace productivity-driven growth by accelerating Industry 4.0 adoption across the manufacturing ecosystem. This includes introducing new tax incentives for investments in automation, robotics, and digital technologies, establishing a MADANI Manufacturing Digitalisation Grant to support SMEs in upgrading to smart production systems, and offering low-interest financing for technology adoption. These incentives must be backed by workforce upskilling programmes and inclusive access to government support funds to ensure all firms can participate in the transition. In addition, foreign worker levy collections should be redirected into dedicated funds to support apprenticeship schemes and high-tech investment. To build long-term supply chain resilience, the National Supply Chain Council must be swiftly established to coordinate cross-sector strategies, while Malaysia should also lead efforts under its ASEAN Chairmanship to establish a regional ASEAN Supply Chain Coordination Council. A dedicated ASEAN Supply Chain Coordination Council is essential to ensure cohesive regional responses to global trade shocks and reduce overreliance on external supply chains. It will enhance intra-ASEAN production linkages, policy alignment, and supply chain resilience. At the strategic level, Malaysia must actively expand its trade architecture by accelerating the conclusion of the Malaysia-European Union Free Trade Agreement and intensifying negotiations with new and emerging markets, including in Africa, Latin America, and the Middle East. A broader and more diversified trade base is essential to reduce reliance on any single export destination and reinforce Malaysia’s global competitiveness amid continued external shocks.
As Malaysia navigates one of the most challenging trade environments in recent memory, FMM reiterates its call for decisive and coordinated action to shield our industries from undue harm. With strong government-industry collaboration, clear and timely policies, and bold structural reforms, Malaysia can preserve its manufacturing leadership, withstand short-term shocks, and chart a sustainable path forward. We remain committed to working closely with all stakeholders to secure Malaysia’s place as a competitive, resilient, and globally trusted trading partner.
DOWNLOAD FMM PRESS STATEMENT
Tan Sri Dato’ Soh Thian Lai
President, Federation of Malaysian Manufacturing
FMM Advocates Transparency, Integrity, Accountability and No Corruption
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About FMM
The Federation of Malaysian Manufacturing (FMM) (formerly known as Federation of Malaysian Manufacturers) has been the voice of the Malaysian manufacturing sector since 1968, advocating policies and initiatives that drive industrial growth, competitiveness and workforce development. Representing over 13,000 member companies (4,100 direct and 8,900 indirect) from the manufacturing supply chain, FMM is actively engaged with government and its key agencies at Federal, State and local levels. FMM is also well-linked with international organisations, Malaysian businesses and civil society. Apart from benefitting from FMM’s advocacy, FMM members enjoy value-added services including training, business networking and trade opportunities as well as regular information updates.
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