SME Association president Chin Chee Seong.
PETALING JAYA: Small and medium enterprises (SMEs) are bracing themselves for the full impact of the sweeping tariffs announced by the United States on April 2 over the coming months and are looking for ways to mitigate the risks.
A tariff of 24% was imposed on Malaysia but with key exemptions for semiconductors, wood products, copper and copper products, energy products and pharmaceuticals. According to Malaysia External Trade Development Corp data, electrical and electronics products comprise 54.6% of all exports to the United States.
SME Association of Malaysia national president Chin Chee Seong estimated that the full impact of the tariffs would be felt in about three months. “SMEs contribute an estimated 13% of Malaysia’s total exports, the worry is if the United States takes more drastic action that will have a wider impact,” he said.
The SMEs that have felt an immediate impact include those in the furniture, food and beverage, information and communication technology industries and other businesses in the processed goods industries.
“We’ve been telling all our members to look for alternative markets, but they’ll need government assistance to do this due to the cost,” said Chin.
Chin told StarBiz that the tariffs offer opportunities for companies keen to explore markets beyond the United States. He believes Malaysia remains a good base for foreign companies to expand in South-East Asia.
“Malaysians have a better understanding of both the East and the West and should leverage these strengths to form partnerships for regional expansion,” Chin added.
Socio Economic Research Centre executive director Lee Heng Guie noted that SMEs could face significant disruptions as they rely on demand from larger export-oriented firms for orders and sub-contracts.
He said besides disrupting supply chains, lower demand resulting in reduced production capacity could lead to layoffs or even closures.
He added that SMEs importing goods would likely face indirect impact from second-order effects, given the interconnectivity of supply chains around the world and with retaliatory measures underway.
“To cover the higher cost of inputs and goods, businesses may need to increase their prices. This can impact customer loyalty and relationships, as customers may turn to larger companies or competitors that offer lower prices,” he pointed out.
“Overall, lower exports demand would result in lower production, and would impact the employment and income of workers in the export-oriented industries and related supporting domestic SMEs along the supply chains, which will bear the bigger brunt of the impact. Lower employment and income will weigh on household spending,” Lee said.
He suggested that grants, subsidies and tax breaks as well as emergency relief funds including low-interest loans and loans restructuring and rescheduling can be considered to support SMEs.
He said the government should help SMEs navigate the tariffs by providing guidance, while also working in tandem with business associations and chambers of commerce to support market diversification, find alternative suppliers and supply chain solutions.
The Small and Medium Enterprises Association national president Datuk William Ng, whose organisation has flagged potential dumping of goods, especially from China due to tariffs limiting demand from the United States, said regulations were in place to limit these activities but would need stricter enforcement.
“There should also be stricter requirements for approval of foreign businesses.
“There is no need to raise the current limit of RM1mil in paid-up capital, but the screening for locations, nature of business and potential cannibalising of local businesses need to be tightened,” he added, with more extreme measures needing government-to-government discussions.
“We must send the message that Malaysia is open for business and remains a business-friendly nation, but we cannot afford to have well-financed retailers operating here on a ‘slash and burn’ basis,” Ng said.
