The 47th President of the United States, Donald Trump, recently announced a reduction in tariffs from 25 percent to 19 percent last week. While this is seen as a good thing for those exporting local goods to the US market, such an agreement certainly comes with its own caveats.
According to the Minister of Investment, Trade and Industry, Tengku Datuk Seri Zafrul Abdul Aziz, there were several requests from the US government that had been complied with to reduce the tariff rate.
From the technology aspect, some of these requests included the abolition of the six percent payment from the income of US social media platforms operating in Malaysia to be channeled to the Universal Service Provision Program fund to power the national internet service network.
Apart from that, the government has also agreed to cancel the digital services tax which is said to be discriminatory against US companies operating in Malaysia. Although this agreement was made, Tengku Zafrul said that the tax imposed is the same for all foreign companies operating in Malaysia, and has never been biased.
Following this, the order for all online traffic passing through foreign Domain Name System (DNS) to be redirected to local DNS has also been lifted.
However, not all requests from the US government have been complied with. Cloud storage and social media services registered and operating in Malaysia are still bound by local law, where they will be subject to any criminal liability if any criminal activity is detected on their platforms.
He also said that the government also has the right to request some of the source code and data for software used in critical local infrastructure, government procurement, including financial, licensing and judicial services.
Malaysia is seen as expanding its semiconductor chip manufacturing sector, with plans such as the Penang Chip Design Academy and ARM-On-Demand to not only produce at least 10,000 local semiconductor engineers, but also to produce the first semiconductor chips produced by a local workforce within the next 10 years.
Part of the agreement to reduce tariffs on exports to the United States is an agreement that the Malaysian government will spend about $150 billion (~RM635 billion) to purchase equipment from the semiconductor, aerospace and data center sectors over the next five years.
Meanwhile, he also said that Malaysia needs to be careful with the development of the local semiconductor sector. Malaysian semiconductor chip exports to the United States are not subject to any retaliatory tariffs at the moment, but if the government decides to increase the tariff value in the future, it will cause issues for the industry.
This is because the country's semiconductor chip production sector is being scrutinized by the government through Section 232 of the United States Trade Expansion Act of 1962. This Act allows the President of the United States to impose trade restrictions on certain products if the US Secretary of Commerce finds evidence that the export of these products (particularly to other markets) could threaten the security of the United States.
The United States is Malaysia's largest export market with a value of RM198.65 billion with inward investments of around RM32 billion by 2024. Any increase in tariffs imposed, especially in the technology sector, is expected to cause serious issues for the local investment sector and economy.
He further said that any trade restrictions on the local semiconductor chip industry could be a major problem for the country's income generation, especially for the more than 100,000 workers in the sector, many of whom are in Kedah and Penang.