The Intel factory is in the same neighborhood as the one set up by AMD, a rival chipmaker. A quick drive away is a plant built by HP. They are all part of a large thicket of buildings that evokes Silicon Valley but is in Malaysia.
American companies started opening manufacturing facilities in Malaysia’s Penang State over five decades ago. The partnership has created tens of thousands of jobs and been a lucrative industry for Malaysia, which has become a crucial cog in the global tech manufacturing industry. It is one of the biggest sources of semiconductors exported to the United States, sending billions of dollars of components used in laptops, phones, cars, toys and medical devices.
Now, like so many places that have prospered thanks to international trade, Malaysia is caught in the cross-hairs of President Trump’s tariffs.
Until recently, Malaysia was seen as a beneficiary of Washington’s desire to keep advanced chips for artificial intelligence out of China’s hands. The thinking was that companies could insulate themselves from the intensifying U.S.-China rivalry by moving operations to Malaysia. The hopes were so high that last year, Prime Minister Anwar Ibrahim set an ambitious goal to prepare Malaysia to build high-tech chips used in A.I. He laid out a decadelong, multibillion-dollar plan to move Malaysia from assembling and testing semiconductors into chip design and cutting-edge manufacturing, akin to Taiwan.
This plan could be undermined by Mr. Trump’s chaotic trade policy, which has left the industry guessing. Last month, his administration imposed a 24 percent levy on all Malaysian exports to the United States. Those tariffs were soon put on hold. The two countries are in negotiations — the status of which is unclear — but all Malaysian goods are subject to a 10 percent base-line tariff Mr. Trump has imposed.
But the president has said that he is also considering a blanket levy of at least 25 percent on all semiconductor imports, arguing that these imports could threaten U.S. national security. He appears committed to trying to move more chip manufacturing back to the United States, said Julia Goh, a senior economist with UOB, a regional bank based in Singapore.
“Mr. Trump may have reversed course on some tariffs,” she said, referring to his administration’s recent agreement with China. But he is unlikely to budge, she said, “when it comes to those tied to a strong agenda to push — like semiconductor tariffs on the basis of national security.”
Last year, the Austrian tech giant AT&S opened a factory in Malaysia in Kedah State, near Penang, making next-generation chips for AMD. It also has plants in Austria, India, South Korea and China, giving it flexibility to move production to different sites as a way to deal with new U.S. levies.
“But still we are closely monitoring the tariff situation,” said Ingolf Schroeder, the company’s executive vice president for microelectronics. “We are trying to build our supply chain as resilient as possible to be able to react to that.”
The likes of Intel and Oracle, another American tech giant with operations in Malaysia, have discussed with Mr. Anwar, the prime minister, how to cope with Mr. Trump’s plan, according to his government. About 65 percent of Malaysia’s electrical and electronics exports are produced by American companies operating there, government data shows.
“Trump’s change of mind over tariffs is a big headache,” said Wong Siew Hai, the president of the Malaysia Semiconductor Industry Association. “Companies are unable to decide on what to do. They are waiting to see the final tariff comparison between Malaysia and other countries as well.”
As the pandemic showed, disruptions or uncertainties in any section of the global supply chain can force multinational companies to consider raising prices. If these companies do not absorb the new tariffs, the higher cost is likely to be borne by American consumers.
Last year, Malaysia exported $16.2 billion worth of chips to the United States, accounting for close to 20 percent of all U.S. semiconductor imports, according to Reuters.
In March, Malaysia said that it would pay the British firm Arm Holdings $250 million over a decade to help build a local semiconductor design sector. It hopes to develop up to 10 homegrown chip-design firms that can bring in a combined revenue of $20 billion a year.
Malaysia has also attracted an investment from the A.I. chip darling Nvidia, which is working with YTL, a Malaysian conglomerate, to develop A.I. infrastructure.
France, Australia and Japan are among other recent investors in chip-design operations in Malaysia looking to establish alternative facilities outside of China, said Yong Kai Ping, chief executive of the Selangor Information Technology & Digital Economy Corporation.
Ng Meng Thai is a co-chief executive of Oppstar, a decade-old Malaysian chip-design company. He said companies in his industry should be able to cope with new tariffs, as it typically takes years for a chip to go from the design state to an actual product.
Still, he added, “some may spend less and delay product developments due to the uncertainty around tariffs.”
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