Malaysia Tightens Semiconductor Regulations Amid US Pressure
Kuala Lumpur – Malaysia is moving to strengthen regulations governing the trade of semiconductors, responding to increasing pressure from the United States to monitor the flow of high-end chips, particularly those manufactured by Nvidia, and prevent their diversion to China. This action comes as Washington seeks to enforce export controls aimed at limiting China’s access to advanced technologies crucial for artificial intelligence and data center development.
US Concerns and Regulatory Scrutiny
The US government is concerned that a significant number of Nvidia chips entering Malaysia are ultimately being shipped to China, potentially violating US export rules . Investment, Trade and Industry Minister Tengku Datuk Seri Zafrul Abdul Aziz stated that the US is requesting close monitoring of every shipment involving Nvidia chips to ensure they reach their intended destinations – data centers – and are not rerouted.
This scrutiny follows a recent prosecution in Singapore involving firms accused of fraudulently supplying US servers to Malaysia, with transactions totaling US$390 million (RM1.7 billion). Singaporean authorities have linked the case to the Chinese artificial intelligence (AI) firm DeepSeek, and have charged three men in connection with the alleged scheme.
Malaysia’s Investigation and Response
Whereas US authorities believe the Nvidia chips ultimately ended up in China after transiting through Malaysia, Malaysia’s own investigation found no evidence that the chips arrived at the Malaysian data center to which they were purportedly sold. Despite this, Malaysia is proceeding with tighter regulations to address US concerns.
Defense of Trade Agreement and Tariff Claims
In separate developments, Tengku Zafrul Abdul Aziz has refuted claims that Malaysia was paying nearly double the tariffs imposed on other countries by the United States. He described the allegations as inaccurate, clarifying that a previous 19% tariff levied on Malaysia was canceled following a US Supreme Court ruling.
Zafrul defended the Malaysia-United States Reciprocal Trade Agreement (ART), signed in October 2025, as a proactive measure taken amidst a volatile global trading environment, comparing it to securing travel insurance. He emphasized that Malaysia acted promptly to secure favorable trade terms rather than waiting for the outcome of legal proceedings in the US.
Economic Outlook and Diversification
These developments occur within a broader context of Malaysia’s efforts to revitalize its economy, focusing on tech-led growth, digitalization, and AI. The 13th Malaysia Plan (13MP), covering 2026-2030, prioritizes high-quality investments in sectors like electrical and electronics (E&E), auto components, aerospace, and green technology. Though, challenges remain, including reliance on foreign technology, limited intellectual property, and the dominance of China’s manufacturing sector.
Despite a consistent current account surplus, domestic investments in Malaysia continue to depend heavily on foreign direct investment (FDI), which often lacks depth and results in limited technological transfer.