US Tariff Threats Cast Shadow Over Penang's Semiconductor Industry

Booming sector, stymied by uncertainty, seeks to move up value chain to survive

- Shannon Teoh

GEORGE TOWN, Penang - US President Donald Trump's first term in the White House was seen as a black swan event with adverse repercussions for much of the global economy, but Malaysia's semiconductor industry emerged relatively unscathed, and even saw orders grow at an unprecedented rate.

However, the return of the brash billionaire to the Oval Office in January for a second term has set off alarm bells in Penang - where over half of Malaysia's chip firms are located - amid fears of wider and deeper trade sanctions being issued by Washington.

Uncertainty has been the overriding sentiment in the northern state's industrial parks, thanks to Mr Trump's pronouncements of on-then-off-then-on-again tariffs.

"Everybody is on the pause button and that's not good for business," InvestPenang chief executive Loo Lee Lian told The Sunday Times.

She added that investors have "been quiet" since the last quarter of 2024, as they prefer to "wait and see what happens".

When Mr Trump first took office in 2017, he largely trained his guns on China, resulting in a massive diversification from the so-called factory of the world, and supply chains being rebuilt elsewhere.

Among the beneficiaries of this was Penang, the so-called "Silicon Valley of the East", which already boasted a semiconductor ecosystem that was nearly half a century old.

In just two years, exports of electronic integrated circuits (ICs) which form the core of Penang's chip sector - doubled from RM57 billion (S$17 billion) in 2016 to over RM116 billion in 2018. The share of ICs in the state's exports also grew from 30 per cent to 41 per cent.