The World Bank has warned that Malaysia risks losing its US export market share to competing countries with lower tariffs, and that an uphill battle lies ahead for the electrical and electronics (E&E) sector.
Nearly 60% of Malaysian goods exported to the US by value, currently subject to a 19% tariff, are also exported by countries with lower tariffs, World Bank lead economist for Malaysia Dr Apurva Sanghi said at a media briefing on Tuesday.
“Based on tariff differentials alone, Malaysia seems more likely to lose US export market share. So that puts Malaysian goods at risk,” he said.
The E&E sector is especially at risk and may be up for a tough time ahead, according to Apurva, even though half of E&E exports are currently exempted from US tariffs.
The sector faces greater potential exposure to US tariffs than its regional peers, dwindling advanced integrated chip (IC) market share, and suffers from structural issues concerning insufficient research and development (R&D) expenditure.
Looking at trade in value-added (TiVA), value added by each country in the production of goods and services, Apurva said Malaysia’s E&E sector’s exposure to US tariffs stands at 27% — above that of neighbouring Vietnam, Thailand and the Philippines.
Meanwhile, the roughly 12% of Malaysia’s E&E value-added tied to China’s E&E exports also leaves it indirectly vulnerable to negative shocks faced by China. “More stringent rules of origin [from the US] would mean fewer imports from China,” he added.
On the lost ground in advanced IC market share, Apurva noted that amid the AI wave, demand has shifted from legacy chips to more advanced chips, predominantly manufactured by suppliers in Taiwan, South Korea and Israel.
Linked to this and the sector's minimal gains from reshoring away from China, Malaysia’s E&E sector lags in innovation capacity and capabilities, the economist said.
He noted that Malaysia’s E&E median R&D-to-sales ratio falls below that of China and Taiwan. “Also, only 13% to 18% of patents granted by the Malaysian patent office went to Malaysian residents,” he added.
Source: theedgemalaysia