Tariffs Trip Up Malaysia’s AI Dreams

Silicon Struggles in Southeast Asia

Malaysia is positioning itself as a key player in the global rush to dominate artificial intelligence, hoping to leverage its semiconductor assembly prowess to pull in investment from chipmakers caught between U.S.-China tensions. However, former President Donald Trump’s era tariffs—still mostly intact—are stifling that ambition. The levies, aimed at Chinese tech, are making it difficult for Malaysia to import affordable chipmaking equipment from China. This directly impacts initiatives like those at Penang’s Free Industrial Zone, where government-backed efforts to court international chip design firms rely on smooth cross-border tech flow. As Malaysia tries to scale up from basic chip packaging to full-scale AI chip design and production, trade barriers are sticking points in an otherwise booming industry.

Geopolitics Meet Circuit Boards

These tariffs have broader implications: they expose how geopolitical maneuvering over technology is disrupting even third-party nations trying to stay neutral. Malaysia has become a magnet for firms looking to diversify their supply chains beyond China, but the U.S. restrictions are forcing difficult decisions. Should Malaysia continue importing parts from tariff-hit China, or look to more expensive alternatives from the U.S. or elsewhere? For a country trying to become a critical node in the AI supply chain, these constraints are coming at the worst time. Several Malaysian officials and business leaders are now appealing for an exemption or some form of economic workaround, fearing the nation could lose its momentum in the AI race.