How will Malaysian SMEs, particularly in key export sectors, grapple with the US’s 24% tariff hike? We outline strategic responses and policy support that can help SMEs sustain their competitiveness.
The United States’ recent decision to impose a sweeping 24% reciprocal tariff on Malaysian goods has sent shockwaves through Malaysia’s export-driven economy, particularly among small and medium-sized enterprises (SMEs). While the policy, introduced under President Donald Trump, aims to address trade imbalances, its impacts on Malaysian SMEs in key sectors are extreme. These sectors not only represent major export categories but also serve as core industries supported by entrepreneurial ventures and SMEs across the country. According to SME Corp Malaysia, SMEs contribute over 38% to Malaysia’s GDP and account for nearly 17% of the country’s total exports.
Impact of Tariff on Malaysian Export Oriented SMEs
The new tariff poses a direct threat to Malaysia’s SME exporters, who are already operating within tight margins. Sectors such as electronics and electrical (E&E) products, which contributed over RM50 billion to Malaysia’s US-bound exports in 2024, are facing increased costs.
Rubber product exporters, including manufacturers of medical gloves and rubber apparel, are also facing significant challenges, with over RM7.6 billion worth of goods now subject to tariff hikes. Similarly, the furniture and medical equipment industries, which are largely populated by SMEs, are under pressure. This sudden shift risks order cancellations from US importers, reduced volumes, and a loss of market share to countries that are not facing similar trade barriers.
More broadly, these sectors relate to local employment and regional supply networks. This contraction in export orders could lead to downsizing, and job losses. Entrepreneurs running these businesses now face mounting uncertainty regarding how to plan, invest, and scale operations considering such a drastic trade shift.
Strategic Responses for Malaysian Entrepreneurs
In tackling these challenges, Malaysian SMEs must adopt a strategic and forward-thinking approach. One of the most immediate responses should be the diversification of export markets. Countries within ASEAN, the Middle East, and even African economies present growing consumer bases with fewer trade barriers.
Second, SMEs should invest in value-added production to move away from low-cost, low-margin manufacturing. Entrepreneurs can reduce their dependency on price competitiveness and enhance their strength against tariff shocks by focusing on product differentiation, branding, and innovation. For instance, in the medical equipment sector, improving product certification and meeting higher regulatory standards can open doors to premium markets beyond the US.
Third, to cushion the impact of the 24% US tariff, Malaysian SMEs should explore forming strategic partnerships with Singapore buyers, the nearest nation with the lowest tariff rate imposed. For instance, Singapore is subject to only a 10% US tariff, less than half the rate imposed on Malaysian goods. Malaysian entrepreneurs can reroute part of their production or final assembly operations there by aiming Singapore’s relatively favourable trade position. This strategy would allow them to label their goods as Singaporean exports, thereby gaining indirect but more affordable access to the US market. For example, a Malaysian medical device manufacturer could partner with a Singaporean firm for final product assembly or packaging.
The core components might still be made in Malaysia, but by completing the last phase of manufacturing in Singapore, the product could qualify for Singapore origin export classification. This not only reduces tariff costs but also ensures continued access to critical export markets without fully relocating operations, preserving jobs and investments in Malaysia while maintaining global competitiveness. This type of cross-border collaboration can help SMEs stay strong amid shifting trade policies and sudden economic disruptions.
Supporting SMEs
Malaysian SMEs can reasonably expect new announcements or support measures from the federal government aimed at easing the burden on exporters. Considering the sudden economic impact of the 24% US tariff on Malaysian exports, the government may revisit and revise existing trade and fiscal policies to mitigate imbalances and protect local businesses. Policy stability is crucial, especially as entrepreneurs fix for additional cost pressures, including the expansion of the Sales and Service Tax (SST) and rising electricity tariffs.
In 2024, the Malaysian government projected that the expanded SST could increase business operational costs by up to 5% across key sectors, which could further strain SMEs already struggling with tariff-related disruptions. Therefore, clear and coordinated strategies will ensure that SMEs are not overburdened and can focus on business continuity.
To support SME sustainability, proactive government intervention and supportive business ecosystems are vital. The Ministry of Investment, Trade and Industry (MITI) has already expressed its intent to engage diplomatically with the US to seek revisions or exemptions. In the meantime, the government may offer targeted relief measures, such as export subsidies, tax incentives, and access to low-interest financing for SMEs affected by tariff disruptions.
Furthermore, enhancing support through agencies like MATRADE, SME Corp, and MDEC can help SMEs identify new markets, build export capabilities, and digitalise their operations. Business incubators, chambers of commerce, and trade associations should also play a key role in connecting entrepreneurs with market intelligence, training, and cross-border business matching.