US Investigates Malaysia Over Excess Electronics & Steel Capacity: What It Means for Investors
•By Maher Alias
Artikel ini juga tersedia dalam Bahasa Melayu
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The United States has officially launched a Section 301 investigation against Malaysia under the Trade Act of 1974. The allegation? Malaysia is said to have excess production capacity in electronics, machinery, and steel sectors - flooding the US market with cheap goods and hurting American domestic industries.
This move comes at an extremely sensitive time - just weeks after Malaysia cancelled its trade deal with the Trump administration, and after the US Supreme Court struck down IEEPA tariffs. What is happening, and what does it mean for investors on Bursa Malaysia?
Section 301 is a US trade law that empowers the US Trade Representative (USTR) to investigate and take action against foreign trade practices deemed unfair. This includes government subsidies, excess production capacity, and practices that harm American industries.
The investigation was launched on March 11, 2026 by USTR Jamieson Greer, involving 16 countries including Malaysia, China, the European Union, Singapore, Japan, South Korea, and others.
According to the USTR statement: "Many US trading partners have abandoned market-based policies and produce more goods than they can consume domestically. The result is excess exports that displace US domestic production."
According to data cited in the USTR investigation, Malaysia's steel production capacity increased 22% between 2018 and 2022, even though domestic demand fell 25% during the same period. This means Malaysia was producing far more steel than needed, with the excess being exported.
Malaysia is Southeast Asia's largest semiconductor and electronics manufacturing hub. The country has a trade surplus of USD16 billion with the US, driven primarily by electronics and machinery exports.
Beyond excess capacity, the investigation also touches on allegations of forced labour in the manufacturing sector - an issue that has long plagued Malaysia, particularly in the glove and electronics industries.
To understand the full context, we need to look at the chronology of events over the past 6 months:
President Trump visited Malaysia and signed a reciprocal trade agreement with PM Anwar Ibrahim. Malaysia secured a tariff rate of 19% - lower than the original 25% rate - but with conditions:
The deal was controversial, with some arguing Malaysia gave away too many concessions, including claims that US firms were given Bumiputera status under the agreement.
On February 20, 2026, the US Supreme Court ruled that Trump's reciprocal tariffs under IEEPA were unconstitutional. This changed the entire landscape because the tariff basis that served as leverage for the bilateral deal had collapsed.
Pressure mounted on PM Anwar to cancel the deal signed with Trump, since the tariff basis that justified the agreement was no longer valid.
On March 15, 2026, International Trade Minister Johari Ghani confirmed the Malaysia-US trade deal had been cancelled. Just 4 days earlier (March 11), the US had already launched the Section 301 investigation against Malaysia.
The question is: Was this investigation retaliation for Malaysia cancelling the deal? Or was it already planned? The answer likely lies somewhere in between.
If the investigation finds Malaysia's practices "unreasonable or burdensome to US commerce," the USTR can take the following actions:
MITI (Ministry of International Trade and Industry) has said they will provide explanations to the US on these issues. The public and stakeholders can submit comments through the USTR portal until April 15, 2026.
As an investor, here is what you need to watch:
Malaysia is not the only country targeted. Here is the full list of 16 countries under investigation:
The reality is that this is part of Trump's reshoring strategy aimed at bringing manufacturing back to American soil. Malaysia is just one of many targets.
According to analysis by KR Institute (Khazanah Research), the Malaysia-Trump tariff deal had significant implications for the country's industrial policy. The original agreement forced Malaysia to purchase US goods in large volumes, which could reduce industrial policy flexibility and hinder local industry development.
The deal's cancellation gives Malaysia more room to manoeuvre, but the Section 301 investigation opens a new risk - higher tariffs without any "protective agreement."
Not necessarily. The Section 301 investigation is the first step. The process includes a public comment period (until April 15, 2026), hearings, and a final decision by the USTR. Tariffs will only be imposed if the investigation finds Malaysia's practices harmful to the US.
A Section 301 investigation can take 6 months to over a year. However, the Trump administration is known for acting faster than usual.
The chronology shows the investigation was launched (March 11) before the official deal cancellation (March 15). So it may not be direct retaliation, but the connection between both events cannot be ignored.
Semiconductors, electronics, and steel are the highest-risk sectors as they are directly involved in the investigation. Companies with high US export exposure like Inari, MPI, and Ann Joo need close monitoring.
MITI has said they will provide explanations to the US regarding excess capacity and forced labour issues. Malaysia can also submit official comments through the USTR portal before April 15, 2026.
It depends on developments. If stocks in affected sectors drop due to fear rather than actual impact, it could be an opportunity. But make sure you understand the real risks before making decisions.
Malaysia can negotiate bilaterally with the US, voluntarily reduce excess capacity, or redirect exports to other markets. MITI needs to act proactively during the public comment period.
Don't make decisions based on fear. An investigation doesn't mean tariffs. Monitor developments, check each company's US exposure, and diversify your portfolio.
The US Section 301 investigation against Malaysia is a serious development that investors need to monitor closely. The combination of excess capacity issues, trade deal cancellation, and geopolitical uncertainty could impact key sectors on Bursa Malaysia. However, an investigation doesn't mean tariffs are certain - there is still room for negotiation and explanation.
In uncertain market conditions like these, it is important for investors to stay informed and prepared.
Open a CDS trading account through Mahersaham to start investing on Bursa Malaysia as well as international stocks such as US and Hong Kong markets.
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