Malaysian manufacturers face greater US scrutiny over Chinese inputs
PETALING JAYA: Malaysian manufacturers could be caught in Washington’s crackdown on Chinese goods allegedly rerouted through third countries, with legitimate exporters potentially facing the same scrutiny as companies which are deliberately using Malaysia as a halfway house to evade US tariffs.
Universiti Kebangsaan Malaysia Centre for Asian Studies head Dr Muhammad Faliq Abd Razak said the risk has become real after the White House classified Malaysia as a Tier 2 country in its latest assessment of alleged illicit transshipment.
“It is a clear indication that greater scrutiny will be applied, and our industries must be prepared to demonstrate our compliance seamlessly.”
The international trade and investment expert said the concern is particularly acute for Malaysian electronics, semiconductors and rubber products industries which routinely use parts and raw materials sourced from China.
“In today’s globalised economy, it is entirely normal for a Malaysian factory to import intermediate components from China, add significant domestic value through manufacturing, and legally export the finished product to the US.”
He said under Washington’s tougher scrutiny, making a product in Malaysia may no longer be enough to satisfy US customs authorities, with exporters potentially required to provide detailed evidence of where their components originated from and how much value was added locally.
“That could mean customs delays, additional paperwork and greater pressure on manufacturers to prove that their products are genuinely Malaysian rather than Chinese goods merely carrying a Malaysian label.”
Muhammad Faliq pointed out the growing use of advanced technology by US Customs and Border Protection to trace the origins of goods and components.
He said automated systems could flag Malaysian exporters simply for buying inputs from China – a common practice within Asean’s deeply interconnected manufacturing networks.
“This underscores the necessity for our exporters to maintain impeccable, contemporaneous documentation of their manufacturing processes to quickly resolve any automated flags.”
He was commenting on the White House identifying Malaysia among more than 40 countries allegedly used to circumvent high US tariffs on Chinese goods by routing exports through third countries.
In its 24-page report, “The Great Transshipment Scam”, the White House placed Malaysia, Indonesia, Vietnam, Brazil, Thailand and Turkiye in Tier 2, describing them as having significant illicit transshipment volumes and deep ties to China-related supply chains, input sourcing and logistics systems.
Legal and trade analysts have noted that the report is a policy document rather than a binding directive.
It carries no legal force on its own and does not itself change Malaysia’s existing tariff obligations to the US.
Malaysia has repeatedly pushed back against US claims of unfair practice this year. In June, Investment, Trade and Industry Minister Datuk Seri Johari Abdul Ghani disputed a separate US allegation that Malaysian manufacturers held excess production capacity.
He said Washington’s concern may have stemmed from goods entering via third countries rather than genuine domestic overcapacity.
Johari told Parliament that Malaysia continues to face several US trade actions under various American legal provisions, and that halting engagement with Washington would only expose the country to greater economic risk.
The US remains one of Malaysia’s most important export markets for its electrical, electronics and semiconductor sectors.
The ministry took over full control of issuing Non-Preferential Certificates of Origin for all USbound exports in May 2025, closing a loophole that had allowed goods from higher-tariff countries to be relabelled as Malaysian-made before export.
The ministry has maintained that transshipment itself is not against any country’s laws as it is part of normal global business strategy.
Abuse of the Certificate of Origin system to dodge import duties, however, is a separate matter that does breach regulations. Muhammad Faliq said simply rejecting the allegations would not be enough.
He called for stronger industry self-policing, tighter controls over the issuance of Certificates of Origin, and independent reviews when specific allegations emerge.
He said the issue goes beyond the immediate risk of tighter US customs checks as it could test Malaysia’s strategy of maintaining strong economic ties with China while positioning itself as a manufacturing hub serving Western markets.
“Repeated allegations of transshipment threaten to undermine Malaysia’s hard-earned reputation as a strict, rules-based trading nation.”
Muhammad Faliq said Malaysia need not choose between its economic relationship with China and access to the US market but it must make the origins of its products easier to verify.
