PETALING JAYA: The recent implementation of US tariffs appears to be more of a strategic negotiation tool than a definitive long-term measure, leaving room for potential recalibration based on future trade agreements.
Phillip Capital Research sees a limited likelihood of changes for those subject to the 10% base tariff.
The research firm said that should these measures become enduring, China’s elevated tariff burden could weigh on Malaysia’s economic growth, posing downside risks to our projected 2025 gross domestic product growth of 5.1%.
“That said, Malaysia’s relatively lower tariff exposure within Asean suggests that overall impact remains manageable, allowing it to maintain export competitiveness and reinforcing our view of trade diversion opportunities,“ the research firm said in a note.
To recap, US President Donald Trump announced comprehensive reciprocal tariffs on April 2, imposing a baseline 10% levy on all trading partners (effective last Saturday), with significantly higher rates targeting specific countries (effective Wednesday).
China faces a 34% tariff, the European Union 20%, Taiwan 32% and Japan 24%, among others. Malaysia’s 24% tariff rate is among the least affected Asean countries, behind Singapore and the Philippines. Additionally, a 25% tariff was imposed on all foreign-made automobiles.
Phillip Capital Research said that, for now, the reciprocal tariffs exempt certain critical goods, steel, aluminium and autos/auto parts subject to existing duties. Other exemptions include copper, pharmaceuticals, semiconductors, lumber, bullion, energy and select minerals unavailable in the United States.
Further, Phillip Capital Research said Chinese gloves entering the US now face a total tariff of 104%, comprising a 50% tariff under Joe Biden’s administration, Trump’s 34% reciprocal tariff, and a pre-existing 20% tariff.
The firm said this has widened the tariff gap between Chinese and Malaysian gloves to 80% from 50% in early 2025, creating a more favourable landscape for Malaysian glove makers.
“The sharp increase in costs for Chinese imports is expected to shift demand towards alternative suppliers, particularly those in Malaysia. With the US accounting for 24-50% of total sales for local glove manufacturers, we foresee stronger demand benefiting the domestic glove industry,“ the research firm said.
Touching on the technology sector, Phillip Capital Research said the temporary exclusion of semiconductors from new US tariffs alleviates immediate concerns.
“However, we remain vigilant for potential future tariff risks. The 25% year-to-date decline in the KL Technology index, which has returned to 2020 levels, has brought valuations down to 28x PE, or -1.5SD below the sector’s historical average PE.
“For sector exposure, we prefer Frontken (buy with a target price of RM4.68), underpinned by its unique front-end value chain proposition and direct access to a leading wafer fab customer, which benefits from growing AI adoption,“ it said.
The research firm further said that the lingering uncertainty over potential sector-specific tariffs on semiconductors may continue to weigh on investor sentiment.
“With earnings recovery expectations repeatedly deferred, valuation multiples could stay derated for longer. Meanwhile, tariff risks may prompt global MNCs to delay or scale back capex spending, increasing the risk of further order slowdown,” it added.
