Key Takeaways

As of September 2026, Malaysian goods entering the US face a 10% Section 301 tariff, in force since 24 July 2026, after the Supreme Court struck down the reciprocal tariffs and the stopgap Section 122 surcharge expired. A second Section 301 investigation, into manufacturing excess capacity, is still open. Proper HS classification, rules of origin documentation, and the right forwarding agent are now critical.

The past twelve months have been among the most turbulent in modern trade history. For Malaysian manufacturers, importers, and exporters, the US-China trade war has evolved from a distant geopolitical dispute into a daily operational reality. Tariff rates have swung wildly, trade deals have been signed and struck down, and new investigations threaten to restart the cycle all over again.

If your business ships goods to or from the United States, or if your supply chain touches Chinese components, this article is your comprehensive guide to where things stand as of September 2026 and what you should be doing about it.

The Timeline: From Liberation Day to the Section 301 Tariffs

April 2, 2025: "Liberation Day" and the Reciprocal Tariffs

On April 2, 2025, President Trump signed an executive order imposing sweeping "reciprocal" tariffs under the International Emergency Economic Powers Act (IEEPA). The order established a 10% baseline tariff on all imports entering the United States, with higher country-specific rates calculated based on what the administration characterised as each country's effective tariff on American goods.

Malaysia was hit with a 24% reciprocal tariff rate. The White House justified this by claiming Malaysia imposes an effective 47% tariff on US goods. In reality, Malaysia's trade-weighted Most Favoured Nation (MFN) tariff rate is approximately 5.6%, and many goods enter under preferential arrangements at even lower rates. The 47% figure appeared to be derived from the bilateral trade deficit rather than any actual tariff schedule, a methodology that economists across the political spectrum criticised as fundamentally flawed.

The impact was immediate. Malaysian electronics exporters, who ship billions of ringgit worth of semiconductors, integrated circuits, and electrical components to American buyers, saw their cost competitiveness erode overnight. Furniture manufacturers in Muar, palm oil refiners in Johor, and rubber glove producers across the country all faced the same question: absorb the cost, pass it on, or lose the customer.

October 2025: The US-Malaysia Trade Agreement

Following months of intense diplomatic engagement led by Trade Minister Tengku Zafrul Aziz and senior MITI officials, Malaysia signed the Agreement on Reciprocal Trade with the United States on 26 October 2025. The agreement kept Malaysia’s reciprocal tariff rate at 19%, down from the 24% announced on Liberation Day, and exempted 1,711 tariff lines covering exports worth up to US$5.2 billion, about 12% of Malaysia’s total exports. The exempted goods included:

While 19% was well below the 24% first announced, it still represented a significant cost increase for most exporters. The electronics and electrical (E&E) sector, which accounts for roughly 40% of Malaysia's total exports, received no exemption. Neither did machinery, plastics, or processed food manufacturers.

February 20, 2026: The Supreme Court Strikes Down Reciprocal Tariffs

In a landmark ruling on February 20, 2026, the US Supreme Court held that the IEEPA cannot be used as the legal authority for imposing tariffs. The court found that the reciprocal tariff programme exceeded the scope of emergency economic powers and encroached on Congress's constitutional authority over trade and taxation.

The ruling effectively struck down the entire reciprocal tariff framework, including Malaysia's 19% rate. Within hours, the White House replaced it with a temporary 10% surcharge under Section 122 of the Trade Act of 1974, applied to virtually all imports from 24 February 2026. Section 122 limits such a surcharge to 150 days, so it was always due to expire on 24 July 2026. On 7 May 2026 the US Court of International Trade ruled the surcharge invalid, although that relief was limited to the plaintiffs who brought the case.

The ruling also left the US-Malaysia agreement in limbo. It had been signed but never ratified, and in mid-March Malaysia’s trade minister declared it void, before walking the statement back the next day (see our analysis of what happened to the US trade deal).

"It is not on hold. It is no longer there, it's null and void."

— Investment, Trade and Industry Minister Johari Abdul Ghani on the Agreement on Reciprocal Trade, 15 March 2026, as reported by the New Straits Times (Malaysiakini)

For Malaysian exporters, the Supreme Court decision was a partial victory. A 10% tariff is far more manageable than 19% or 24%. But the relief proved temporary, as the next two sections show.

March 11, 2026: The Excess-Capacity Section 301 Investigations

Less than three weeks after the Supreme Court ruling, the Office of the United States Trade Representative (USTR) launched Section 301 investigations into Malaysia and 15 other countries. The stated basis: "structural excess capacity" in manufacturing sectors that allegedly harm American industry.

Section 301 is the same legal authority used to impose tariffs on China beginning in 2018. Unlike the IEEPA-based reciprocal tariffs, those Section 301 tariffs on China have been upheld by US courts and can be imposed without the emergency powers framework the Supreme Court rejected. The investigation covers a broad range of sectors, including:

Section 301 investigations typically take 6 to 12 months. If the USTR finds that Malaysia's trade practices are "unreasonable or discriminatory," it can impose targeted tariffs on top of the tariff Malaysian goods already pay. USTR held public hearings on 5–8 May 2026, and as of mid-September 2026 it had announced no determination or tariff action in these excess-capacity investigations (USTR). For Malaysian manufacturers in the affected sectors, the tariff threat is far from over.

24 July 2026: The Forced-Labour Section 301 Tariffs Take Effect

The tariff Malaysian exporters actually pay today came from a different set of Section 301 investigations. On 23 July 2026, USTR concluded investigations into 60 economies over their failure to ban imports of goods made with forced labour, and imposed additional duties of 10% or 12.5%. Malaysia is in the 10% group, alongside Indonesia, Cambodia, India and Mexico, among others (White House). The duties took effect on 24 July 2026, the same day the Section 122 surcharge expired, so the headline rate on Malaysian goods stayed at 10% while its legal basis changed.

The action carries exemptions for certain products, including goods for civil-aircraft and pharmaceutical use, and directs USTR to set up tariff-rate quotas for Malaysia, Bangladesh, Cambodia and Indonesia that let a set volume of textiles and apparel enter free of the Section 301 duty, tied to each economy’s imports of US cotton and textile inputs. On 3 August 2026, 25 US states led by Oregon, Arizona and California challenged the tariffs at the Court of International Trade (State of Oregon v. Trump), asking the court to declare them unlawful and order refunds. Until a court rules otherwise the 10% applies, so confirm the rate in force on your shipment date.

How the Trade War Is Reshaping Malaysia's Logistics Landscape

The China Plus One Windfall

Paradoxically, the same trade war that threatens Malaysian exporters has also created significant opportunities. As multinational corporations seek to diversify manufacturing away from China to reduce tariff exposure, Malaysia has emerged as one of the primary beneficiaries of the China Plus One strategy.

The numbers are striking. Malaysia recorded RM218.5 billion of approved investments in the first half of 2026, 11.7% more than a year earlier, and foreign investments of RM126.9 billion were up 18.5% year on year, with the United States, Singapore, Japan and China the largest sources (MIDA). Port Klang handled 6.38 million TEUs in January–May 2026, up 5.4% on the same five months of 2025, according to Transport Minister Anthony Loke (The Edge), reflecting the increased volume of raw materials flowing in and finished goods flowing out.

For logistics operators in Port Klang, this has meant a significant increase in demand for warehousing, haulage, and freight forwarding services. But it has also introduced new complexities, particularly around rules of origin and transshipment compliance.

Enhanced US Customs Enforcement and Transshipment Risk

The surge of Chinese investment into Malaysia has not gone unnoticed in Washington. US Customs and Border Protection (CBP) has expanded inspections of shipments originating from Malaysia, particularly in sectors where China faces high tariff rates. The concern: goods manufactured in China are being routed through Malaysia with minimal processing to circumvent tariffs, a practice known as transshipment or tariff evasion.

CBP has deployed additional staff and data analytics tools to identify suspicious patterns, including:

The penalties for transshipment violations are severe. US importers can face retroactive duty assessments, seizure of goods, and civil or criminal penalties. Malaysian exporters found to be facilitating transshipment risk being blacklisted by CBP, which would effectively shut them out of the US market.

Industries Under Pressure

The tariff environment affects different Malaysian industries in different ways. Here is a sector-by-sector breakdown of the current situation:

Electronics and Electrical (E&E)

Malaysia’s largest export sector now faces the 10% forced-labour Section 301 tariff, and electronics and semiconductors are among the sectors named in the still-open excess-capacity investigation. E&E manufacturers in Penang and Kulim are accelerating efforts to demonstrate substantial transformation and local value-add to protect their country-of-origin status. Companies that can document a clear manufacturing process in Malaysia, rather than simple assembly of Chinese components, are better positioned to withstand CBP scrutiny.

Palm Oil and Rubber

Both sectors were among the tariff lines exempted under the October 2025 agreement, but that carve-out sat inside the reciprocal tariff framework the Supreme Court struck down. Whether a given palm oil or rubber product is exempt from the July 2026 Section 301 duty depends on its HS code, so check it against the action’s exemption list rather than assuming the old exemption carries over. Palm oil exporters should also monitor the excess-capacity investigation closely, as "structural excess capacity" arguments could potentially be applied to commodity exports.

Furniture

Muar-based furniture manufacturers have been both beneficiaries and victims of the trade war. Many gained market share when Chinese furniture faced steep tariffs, but the 10% Section 301 tariff on Malaysian goods still cuts into margins. Manufacturers with strong US relationships and established supply chains are weathering the storm better than newer entrants.

Machinery, Plastics, and Industrial Goods

These sectors face the 10% Section 301 tariff, and machinery is also named in the open excess-capacity investigation. For machinery exporters, the tariff is often absorbed by the buyer because switching costs are high and lead times are long. For plastics and commodity industrial goods, the tariff has squeezed margins and some Malaysian exporters have lost orders to competitors in countries with lower effective tariff rates.

Practical Strategies for Malaysian Businesses

The tariff environment is volatile, but it is not unmanageable. Here are concrete steps that Malaysian importers and exporters should be taking right now:

1. Audit Your HS Code Classifications

Incorrect or suboptimal Harmonized System (HS) code classifications can mean the difference between a 0% and a 25% tariff rate. Many businesses have been using the same HS codes for years without reviewing whether a more accurate or favourable classification exists. Work with your forwarding agent to review every product line and ensure your HS codes are both accurate and optimised. On the import side, review your customs valuation at the same time and check whether any anti-dumping duties apply to your inputs.

2. Strengthen Your Rules of Origin Documentation

With CBP intensifying transshipment inspections, robust rules of origin documentation is no longer optional. If your products contain Chinese components, you need to demonstrate that substantial transformation occurs in Malaysia. This means maintaining detailed production records, bill of materials documentation, and manufacturing process descriptions that prove your goods legitimately originate in Malaysia, and understanding what a Malaysian certificate of origin does and does not prove.

3. Diversify Your Export Markets

The US remains an important market, but overreliance on any single destination is risky in the current environment. Malaysian exporters should actively explore opportunities in ASEAN, the EU, the Middle East, and other markets where Malaysia has preferential trade agreements. RCEP and CPTPP provide tariff-free or reduced-tariff access to many countries that can partially offset US market uncertainty.

4. Review Your Supply Chain for Transshipment Exposure

If your supply chain involves Chinese raw materials or components, conduct a thorough review to ensure you are not inadvertently creating transshipment risk. This is particularly important for companies operating in free trade zones or licensed manufacturing warehouses. Ensure your value-added processes are well-documented and meet the substantial transformation threshold.

5. Stay Current on Section 301 Developments

Two Section 301 tracks matter. The forced-labour tariffs have been in force since 24 July 2026 and are under legal challenge; the excess-capacity investigation launched in March 2026 had produced no action as of mid-September 2026 but could still end in new tariffs. Malaysian businesses in the targeted sectors should monitor USTR announcements, participate in public comment periods when they open, and engage with industry associations like FMM and MATRADE to coordinate responses.

6. Build Tariff Costs into Your Pricing Strategy

Stop treating tariffs as a temporary disruption. The legal basis for the 10% US tariff on Malaysian goods changed twice in 2026, from IEEPA to Section 122 to Section 301, yet the rate held, and additional tariffs may come. Build these costs into your pricing models, negotiate cost-sharing arrangements with your US buyers, and explore duty drawback programmes that may allow you to recover tariffs on goods that are re-exported.

How DNE Forwarding Helps You Navigate the Tariff Storm

In an environment where a single HS code error or a missing certificate of origin can cost your business tens of thousands of ringgit, having the right forwarding agent is not a luxury. It is a necessity.

DNE Forwarding has been handling freight forwarding, customs clearance, and haulage out of Port Klang for over two decades. Here is how we help our clients navigate the current tariff environment:

The trade war is not going away. But with the right preparation, the right documentation, and the right forwarding agent, Malaysian businesses can continue to compete and win in global markets, even in the middle of the storm.

Part of a guide: this article is part of our complete guide to How to Calculate Import Duty & SST in Malaysia: Step-by-Step With Real HS Codes.

Frequently asked questions

Are US reciprocal tariffs still in effect for Malaysia in 2026?

No. On 20 February 2026 the US Supreme Court held that IEEPA cannot be used to impose tariffs, striking down the reciprocal tariff framework, including Malaysia's 19% rate. A temporary 10% Section 122 surcharge replaced it and expired on 24 July 2026. Since then, Malaysian goods have faced a 10% Section 301 tariff imposed after USTR's forced-labour investigations, which 25 US states are challenging in court.

What are the Section 301 investigations into Malaysia?

There are two. On 23 July 2026 USTR concluded forced-labour investigations into 60 economies and imposed a 10% tariff on Malaysian goods from 24 July 2026. Separately, on 11 March 2026 it opened excess-capacity investigations into Malaysia and 15 other economies; public hearings were held in May 2026, and as of mid-September 2026 no determination or tariff action had been announced.

How is the trade war benefiting Malaysia's logistics sector?

As multinationals diversify manufacturing away from China under the China Plus One strategy, Malaysia has become a primary beneficiary. Foreign approved investments rose 18.5% year on year to RM126.9 billion in the first half of 2026, according to MIDA, and Port Klang handled 6.38 million TEUs in January to May 2026, up 5.4% year on year, driving increased demand for warehousing, haulage, and freight forwarding services.

What is transshipment risk and why is US Customs cracking down?

US Customs and Border Protection has expanded inspections of shipments from Malaysia, concerned that goods manufactured in China are routed through Malaysia with minimal processing to circumvent tariffs, a practice known as transshipment. Penalties are severe, including retroactive duty assessments, seizure of goods, and civil or criminal penalties. Malaysian exporters found facilitating it risk being blacklisted by CBP.

What should Malaysian importers and exporters do to manage tariffs?

Audit your HS code classifications, since incorrect codes can mean the difference between a 0% and a 25% tariff rate. Strengthen rules of origin documentation to prove substantial transformation occurs in Malaysia, diversify export markets beyond the US using RCEP and CPTPP, review your supply chain for transshipment exposure, stay current on Section 301 developments, and build tariff costs into your pricing strategy.

Which Malaysian industries are most affected by the tariffs?

The electronics and electrical (E&E) sector, Malaysia's largest export at roughly 40% of total exports, faces the 10% Section 301 tariff and is also named in the open excess-capacity investigation. Palm oil and rubber were exempted under the October 2025 agreement, but that carve-out fell with the reciprocal tariffs, so exporters should check each HS code against the July 2026 exemptions. Muar furniture manufacturers, machinery, plastics, and industrial goods face the 10% tariff, squeezing margins.