The United States has launched an investigation into Malaysia over allegations of excess manufacturing capacity in several sectors, including electronics, machinery, and steel. The probe was initiated by the Office of the United States Trade Representative (USTR) under Section 301 of the Trade Act of 1974.
According to the USTR, the investigation will examine whether the policies or practices of certain economies contribute to structural excess production that could burden or restrict US commerce. Other economies apart from Malaysia included in the probe are China, the European Union, Singapore, Switzerland, Norway, Indonesia, Cambodia, Thailand, South Korea, Vietnam, Taiwan, Bangladesh, Mexico, Japan and India.
The USTR said the investigations follow concerns that some trading partners have developed production capacity that is not aligned with domestic or global demand. It claims such practices can lead to overproduction, persistent trade surpluses and unused manufacturing capacity that may affect US industries.
Trade Excess And Key Export Sectors Highlighted
For Malaysia specifically, the USTR pointed to the country’s persistent global goods trade surplus. It noted that Malaysia’s exports are led by sectors such as electronic equipment, mineral fuels and oils, machinery, animal and vegetable fats and oils, as well as optical, photo, technical and medical apparatus.
In 2024, Malaysia recorded an excess trade equivalent to 7.3% of its GDP, amounting to about US$31 billion, down from US$47 billion in 2023. During the same year, it also maintained a bilateral goods and services trade surplus with the United States totalling US$16 billion, most of which came from goods trade, particularly in electronics and machinery.
The USTR also highlighted Malaysia’s steel sector as an example of potential excess capacity. It said steel production capacity grew by 22% between 2018 and 2022 despite a 25% decline in demand over the same period.
What This Investigation Means
Investigations under Section 301 of the Trade Act of 1974 allow the US government to examine whether foreign trade practices are unfair or harmful to American industries. If the USTR determines that such practices exist, it can recommend retaliatory measures.
These measures may include new tariffs on imports from the affected economies, quotas on certain goods, or other trade restrictions aimed at protecting domestic industries in the United States. In practice, this means Malaysian exports in sectors highlighted by the probe could potentially face higher duties or additional scrutiny if the investigation concludes that excess production harms US manufacturing.
Public Hearings And Next Steps
The investigation is expected to take several months. During the process, the inter-agency Section 301 committee will hold public hearings and invite written comments from stakeholders. Members of the public can submit comments or requests to testify through the USTR’s electronic portal by April 15. Once the investigation concludes, the USTR will determine whether further action is necessary and what measures may be taken.
Earlier Tariffs Struck Down
The probe comes after the Supreme Court of the United States ruled on Feb 20 that previous tariffs imposed under the International Emergency Economic Powers Act exceeded the authority granted under existing trade laws. Following that decision, the administration of US President Donald Trump introduced a 10% global levy on foreign goods under Section 122 of the Trade Act of 1974 and is considering raising it to 15%.
Malaysia had previously announced a reciprocal trade agreement with the United States that could secure a 19% tariff rate, though the arrangement has yet to be ratified. The outcome of the ongoing investigation could influence future trade measures affecting Malaysian exports to the US.
