RHB: US Tariffs Prompt Manufacturing Shift, Rushed Orders In Malaysia's Tech Sector

KUALA LUMPUR, April 24 (Bernama) -- Malaysia’s technology (tech) sector should benefit from a surge in rushed orders and the intensified reallocation of manufacturing activities to ASEAN following the United States (US) tariff imposition, said RHB Investment Bank Bhd.

The investment bank said that semiconductors were exempted from the US tariffs, and there are limited direct exports of these from Malaysia to the US, but grey clouds loom for export-oriented sectors like technology.

“The supply chain has (also) emerged stronger from the first phase of the US-China trade war,” it said in a research note today.

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RHB Investment explained that the majority of Malaysia-listed technology supply chain companies do not directly export components, integrated circuits, or equipment to the US.

“As such, they are largely insulated from the direct tariff effects. Most shipping agreements are based on ex-works terms (EXW), meaning any potential effects are likely indirect, arising from possible demand disruptions driven by higher prices of goods due to tariffs.

“Furthermore, this trade war’s impact is unlikely to mirror the scale of disruption seen during the COVID-19 era,” it added.

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On a short-term outlook, RHB said rushed orders -- given the 90-day pause on reciprocal tariffs -- and order reallocation will benefit those with excess capacity.

“Export volumes may drop for goods made in China, but the demand for chips from the rest of the world would not be severely affected.

“Nonetheless, we expect a bigger shift in the volume of orders to places like ASEAN,” it said.

For mid-term prospects, demand uncertainties loom in the mid-term as the flip-flop in the US’s external trade policy remains, said the bank.

It said this should hinder any potential major capital expenditure and manufacturing reallocation plans, potentially affecting the demand for equipment and causing excessive inventory build-up.

From a long-term view, the tariff war may be positive for Malaysia due to its strengths in ecosystem, talent and infrastructure, coupled with likely lower tariffs compared to competing countries, it said.

“Should onshoring activities pick up, we do not expect a massive volume of chip production to be relocated out from Malaysia -- the lower value-added manufacturing activities are not exactly economically viable for chips to be produced in the US,” it added. 

EXW is an international trade arrangement in which the seller makes a product available at a designated location, and the buyer is responsible for all subsequent logistics and costs.

-- BERNAMA