US overcapacity ruling could raise costs, hit Malaysia’s export competitiveness

Malaysia confronts possible trade and cost hurdles as the United States ponders whether its manufacturing sector is impacted by "excess capacity." Investment, Trade and Industry Minister Datuk Seri Johari Abdul Ghani disclosed that Malaysia is eagerly anticipating Washington's decision, anticipated within three to four weeks following a legal review and approval process.

The outcome could carry substantial ramifications for Malaysia's export-dependent economy, particularly for manufacturers relying on components or inputs from abroad. The US is still deliberating the definition of "excess capacity," including whether products utilizing inputs from countries considered to have structural excess capacity could face additional scrutiny during processing or re-exportation through Malaysia.

Malaysia maintains its domestic manufacturing sector lacks structural excess capacity, with production driven by market demand. Nonetheless, a more expansive US interpretation could intensify pressure on Malaysian manufacturers to ascertain the origins of components and materials in exported goods, potentially heightening compliance costs and introducing supplementary supply-chain challenges.

Currently subject to a temporary 10% tariff, Malaysia shares the lower tariff tier with 16 other economies, while certain countries incur a 12.5% rate. Any alteration stemming from the investigation might affect the price competitiveness of Malaysian goods in the US market and sway investment and sourcing decisions by multinational firms operating in the nation.

Johari affirmed that the separate US inquiry into forced labor involving Malaysian supply chains had essentially been resolved, leaving the definition of excess capacity as the remaining outstanding issue. "The process will take about three to four weeks to undergo legal review and approval before an official announcement is made," Johari stated to reporters following the 43rd MAJECA-JAMECA Joint Conference.

"For now, the status quo remains." Consequently, the forthcoming decision is under close observation by Malaysia's manufacturing and export sectors, with the primary concern being whether Malaysian-based production could indirectly be affected by policies targeting excess capacity originating elsewhere.