OCTOBER 16 — When the United States again threatens to impose sweeping tariffs on semiconductor imports, the tremors are felt far beyond Silicon Valley. In Penang – the “Silicon Valley of the East” – such policy risks highlight an urgent truth: Malaysia must anchor Penang’s semiconductor future not only through sound industrial policy but also through regional diplomacy at the Asean and East Asia Summit (EAS).
The threat of punitive tariffs, though not yet implemented, casts uncertainty over Penang’s remarkable rise as a global semiconductor hub. The state contributes about 5 per cent of the world’s semiconductor exports and nearly 55 per cent of Malaysia’s shipments to the United States. Any unilateral move by Washington to penalise offshore chip production would therefore strike at the heart of Penang’s economy and Malaysia’s wider high-tech aspirations.
This is why Malaysia must elevate Penang’s semiconductor interests beyond domestic economic planning and into the regional diplomatic arena. The issue belongs at Asean and EAS, where Malaysia can work collectively to shield Southeast Asia’s semiconductor ecosystem from external political turbulence.
Penang’s strategic value
Penang’s transformation into a global node in the semiconductor supply chain stands as one of Malaysia’s greatest development stories. Over the decades, the state has attracted global giants such as Intel, AMD, Infineon, and Micron. Its ecosystem – comprising advanced packaging, testing, and materials engineering – has positioned Malaysia as one of the world’s top six semiconductor exporters.
Recent figures show that American investments continue to flow steadily into Penang’s manufacturing sector, reaffirming its centrality to global chip production. Yet, if high tariffs were to be imposed on imports into the US, Penang’s competitiveness would immediately erode.
Margins would shrink, investors might reconsider new expansions, and Malaysia’s growth trajectory could stall.
This overexposure to external policies underscores the need for Malaysia to diversify markets and reinforce Penang’s strategic standing through regional cooperation.
Why Asean and the EAS matter
Asean and the EAS are not ceremonial gatherings; they are crucial platforms where Malaysia can build consensus around the idea that semiconductors are strategic goods vital to the prosperity of all regional economies. Through these frameworks, Malaysia can promote stability, resilience, and innovation in the semiconductor industry.
Five strategic moves stand out:
First, Malaysia should lead in establishing an Asean–East Asia Semiconductor Corridor – a cooperative framework linking research, design, fabrication, and packaging across the region.
This would embed supply-chain resilience into regional policy and reduce dependence on any single export market.
Second, Kuala Lumpur must push for collective tariff exemptions for Asean-based semiconductor exports. Many US companies already manufacture within Asean; imposing tariffs on their overseas operations would harm American corporate interests as much as regional ones.
Third, the region should establish a Technological Resilience Fund – a pool of resources that can cushion the impact of external shocks, whether caused by tariffs, sanctions, or natural disasters.
Fourth, Asean and its partners should invest jointly in R&D collaboration to move up the value chain. Shared laboratories, regional grants, and university–industry partnerships can help Southeast Asia become not just a manufacturing base but a centre of design excellence.
Finally, Malaysia must capitalise on trade frameworks like the CPTPP and RCEP to expand market access. Diversifying export destinations to Japan, South Korea, and China would help neutralise exposure to US policy shifts.
Reinforcing domestic foundations
Diplomacy must be matched by domestic coherence. Federal and state authorities must align strategies on tax incentives, R&D funding, and infrastructure. The National Semiconductor Strategy, launched earlier this year, should evolve into an implementation roadmap linking local start-ups, research institutions, and multinational anchors.
Building the capacity of local firms is essential. Malaysia’s semiconductor ecosystem remains dominated by foreign players; local companies must be empowered to climb the technological ladder. Access to venture capital, skills training, and regional R&D partnerships will be key.
Infrastructure is another pressing issue. Congestion and logistics bottlenecks threaten to undermine Penang’s efficiency. A renewed federal–state commitment to public transport, ports, and industrial corridors will ensure that Penang retains its reputation as Southeast Asia’s most dependable production hub.
Above all, Malaysia must guarantee regulatory consistency – clear taxation rules, transparent incentives, and predictable labour and environmental laws. Investors in high-value industries demand stability and confidence, not political oscillation.
A call for diplomatic foresight
In an era when semiconductors are the new oil, Malaysia cannot afford to be a passive participant in global industrial realignments. The intensifying rivalry between the United States and China places Asean’s semiconductor powerhouses in a delicate position. Malaysia’s role should be to ensure this rivalry yields cooperation, not coercion.
By championing semiconductor stability within Asean and the EAS, Malaysia can demonstrate regional leadership and transform vulnerability into strategic leverage. A unified regional voice would also send a strong message to global investors: Southeast Asia remains a neutral, rules-based, and resilient production base for advanced technologies.
The coming years will determine whether Southeast Asia becomes a theatre of tariff wars or a beacon of technological cooperation. Malaysia’s active diplomacy can make the difference.
Perfecting Penang’s future
To perfect Penang’s semiconductor future means embedding its economic destiny in the collective stability of Asean and East Asia. Malaysia should propose at the upcoming summits a Semiconductor Stability Agenda – integrating trade, technology, and talent frameworks across the region.
Such a move would not only protect Penang but also enhance Malaysia’s strategic profile as a bridge between the United States and China, and as a convener of pragmatic regionalism.
If Penang falters, Malaysia would lose more than an industrial hub – it would lose a pillar of technological credibility and diplomatic influence. But if Malaysia succeeds in embedding Penang’s interests into Asean’s cooperative architecture, it would reaffirm that small states can shape great-power outcomes through foresight and unity.
Penang’s evolution from a colonial port into a semiconductor powerhouse is proof of Malaysia’s ingenuity and resilience. The next step is to transform that success into Asean’s shared strength – ensuring that Penang’s brilliance continues to shine, not in isolation, but as the pulse of a region that learns, adapts, and leads.
* Phar Kim Beng is a Professor of Asean Studies and Director, Institute of International and Asean Studies at the International Islamic University Malaysia. Luthfy Hamzah is a Research Fellow.
** This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.
