By Dr Mohd Safar Hasim
Malaysia’s trade with the United States and China—our two largest partners—makes up nearly one-third of our total trade. This concentration is our strength, yet it is also our greatest vulnerability.
The very ties that anchor us in global supply chains expose us to the turbulence of two superpowers locked in rivalry.
Our prosperity is built on semiconductors and electronics flowing to these markets, but that same dependence leaves us exposed to shocks we cannot control.
The Paradox of Dependence
Malaysia’s export profile is unusually concentrated. More than half of our exports to the United States are in electronics and semiconductors. China, meanwhile, is both a key market and a critical supplier in the same sector. This twin dependence means that any turbulence in Washington or Beijing reverberates disproportionately in Kuala Lumpur.
The World Bank estimates that a one percentage point slowdown in U.S. growth could shave nearly 0.8 percentage points off Malaysia’s GDP—one of the sharpest impacts in ASEAN.
A similar slowdown in China could cut another 0.45 percentage points. Few economies in the region are so tightly bound to both giants.
The numbers illustrate the scale of this reliance. In the first four months of 2025, Malaysia’s trade with China reached RM161.98 billion (US$36.5 billion), while annual trade with the United States typically exceeds RM260 billion, driven largely by electronics exports.
Together, these two partners account for nearly one-third of Malaysia’s total trade. That is the paradox: the very concentration that secures our place in global supply chains also magnifies our fragility.
The Semiconductor Strategy
Malaysia has deliberately positioned itself as a hub for semiconductor assembly, testing, and increasingly, higher value design. The recent cooperation pact with the Netherlands on superconductors underscores this strategy. It signals ambition: to move up the value chain, to secure a place in the next wave of technological innovation, and to remain indispensable to global supply chains.
But it also deepens the paradox. Semiconductors are not just another export. They are the frontline of geopolitical rivalry. They are cyclical, prone to boom and bust demand swings. And they are increasingly weaponised in the contest between Washington and Beijing.
Instead of broadening our range of trading partners and products, Malaysia has gone deeper into IT and semiconductor specialisation. This strategy has short term logic.
Global demand for chips is surging, driven by artificial intelligence, electric vehicles, and digital infrastructure. Malaysia’s ecosystem—skilled labour, infrastructure, and multinational partnerships—is hard to replicate.
But the long-term risks are clear. Overconcentration leaves us vulnerable to geopolitical shocks, technological disruption, and demand volatility. A tariff war, a breakthrough in chip design that shifts value chains elsewhere, or a cyclical downturn could all hit Malaysia harder than more diversified economies.
Trump, Xi, and the Geopolitical Overlay
The return of Donald Trump to the White House adds a new layer of uncertainty. His administration has already signalled a harder line on trade, with reciprocal tariffs and a willingness to use economic leverage as a tool of foreign policy. For Malaysia, whose E&E exports to the U.S. are substantial, this is a direct risk. Tariffs could erode competitiveness, divert supply chains, or force costly adjustments.
At the same time, Xi Jinping’s continued leadership in China means that Malaysia cannot expect a softening of Beijing’s industrial policy or its determination to dominate advanced technologies.
China remains both a market and a competitor. Its own semiconductor ambitions could, over time, reduce reliance on Malaysian assembly and testing.
Thus, Malaysia finds itself in a delicate position. Our two largest trading partners—together accounting for nearly one-third of our total trade—are also locked in strategic rivalry.
Each is pursuing policies that could, intentionally or not, squeeze middle economies like ours. We are not alone in this dilemma—Vietnam, Thailand, and Singapore face similar pressures—but Malaysia’s unusually high concentration in semiconductors makes us more exposed.
A Way Forward
Malaysia must not abandon its semiconductor strategy. It is too valuable, too deeply embedded in our economy, and too central to our global positioning. But it cannot stand alone.
To build resilience, Malaysia needs to complement this strength with a broader base of markets, products, and domestic anchors.
The first step is to diversify our trading relationships. At present, nearly one-third of our total trade is tied to the United States and China, leaving us exposed to the turbulence of their rivalry. By deepening economic ties within ASEAN, and extending our reach into South Asia, the Middle East, and Africa, Malaysia can reduce its overreliance on the two giants.
Our chairmanship of ASEAN in 2025 provides a timely platform to push for greater intraregional integration, harmonised standards, and digital connectivity that can cushion us against external shocks.
Diversification must also extend to what we produce. While semiconductors will remain our flagship, Malaysia should broaden its product mix to include sectors with long-term global demand. Green technologies, medical devices, pharmaceuticals, and halal certified industries all offer opportunities to complement our electronics strength.
These industries may not rival semiconductors in scale, but together they can provide a more balanced and sustainable export profile.
Equally important is the strengthening of our domestic economy. A country that relies too heavily on external demand is always at the mercy of global cycles.
Malaysia must therefore nurture stronger domestic consumption and services sectors. This means ensuring that wage growth keeps pace with productivity, that social safety nets are robust enough to cushion households from subsidy reforms and cost of living pressures, and that innovation ecosystems encourage local entrepreneurship rather than depending solely on multinational investment.
A stronger domestic base will ensure that external shocks do not immediately translate into household pain.
In short, Malaysia’s way forward lies in balance. We must continue to leverage our semiconductor strategy, but not allow it to define us entirely. We must remain open to the world, but not so concentrated that a tariff in Washington or a policy shift in Beijing can destabilise our economy overnight.
By broadening our markets, diversifying our products, and strengthening our domestic foundations, Malaysia can turn the paradox of dependence into a platform for resilience.
Turning Paradox into Platform
Malaysia’s openness has always been a double-edged sword. Our strength in semiconductors and our ties to the U.S. and China are not weaknesses in themselves. But without diversification, they become vulnerabilities.
The return of Trump in Washington and the continued leadership of Xi in Beijing sharpen this paradox. Both leaders are pursuing policies that could destabilise the very supply chains Malaysia depends on. Yet both also need reliable partners. Malaysia’s challenge is to position itself not as a pawn caught between giants, but as a resilient node in a multipolar economy.
If we can strike this balance—leveraging our semiconductor strategy while broadening our base—then what is today a source of fragility could yet become the foundation of long-term resilience.
The paradox of dependence can be turned into a platform for renewal.
In the end, Malaysia’s strength and vulnerability are two sides of the same coin. The task of leadership is to ensure that the coin lands on the side of resilience.
The views expressed here are entirely those of the author, a Council Member of the Malaysian Press Institute (MPI)
WE