How Prepared is Malaysia's Semiconductor Sector for Global Trade Challenges?

On January 13, 2025, the Biden-Harris administration released an Interim Final Rule on AI Diffusion, imposing export restrictions on US-developed AI chips. This rule significantly impacts Malaysia, which is positioned in the middle tier of countries facing these export caps. Malaysia accounts for 13% of global chip testing and packaging services and ranks as the sixth-largest semiconductor exporter globally. The US has invested heavily in Malaysia's semiconductor sector since the 1970s, with the electrical and electronics (E&E) sector generating RM575 billion in revenue in 2023. [475d0b69]

Major Malaysian firms such as Inari Amertron and Unisem exhibit varying degrees of market concentration, indicating a mixed landscape within the semiconductor industry. Experts suggest that Malaysian firms should consider diversifying geographically to mitigate risks arising from the ongoing US-China trade tensions. The Malaysia Semiconductor IC Design Park initiative aims to enhance local capabilities, fostering growth and innovation within the sector. [475d0b69]

In the context of the broader geopolitical landscape, the recent US export controls on advanced computing semiconductors and AI chips have raised concerns about the stability of supply chains in the semiconductor industry. The US Commerce Department's actions, which include adding numerous Chinese firms to its entity list, aim to prevent technology transfer to China, thereby impacting global semiconductor dynamics. [786656cd][e2cb72cd]

As the US continues to navigate its trade policies, the implications for countries like Malaysia underscore the challenges faced by semiconductor firms in adapting to shifting global demands and regulatory environments. Investors are advised to consider geographical exposure and diversification when evaluating semiconductor firms, as the landscape becomes increasingly complex amid rising geopolitical tensions. [475d0b69]