Malaysia faces proposed 10% US tariff as Section 301 review over forced labour import controls continues

• A 10% tariff has been proposed on Malaysian goods, but it remains subject to public consultation and final determination.
• Malaysia said it already has strong domestic labour protections and is addressing the regulatory gap on import screening, while also disputing claims of industrial overcapacity.
• The US Section 301 findings were said to focus on the absence of a dedicated legal mechanism to block imports linked to forced labour in third countries.
  

Malaysia is currently engaged in an ongoing review under the United States’ Section 301 trade investigation framework, following the release of findings by the United States Trade Representative (USTR) on 2 June 2026.

According to a media statement by Malaysia's Ministry of Investment, Trade and Industry, (MITI), the review covers two areas: concerns related to forced labour-linked imports and industrial overcapacity. The process is still underway, with consultations, submissions, and hearings continuing before any final decision is made.

Forced labour-related findings and proposed tariffs

In its 2 June 2026 findings, the USTR proposed a 10% tariff on Malaysian goods under the Section 301 framework. This proposed rate would only take effect after the expiry of the current Section 122 tariff on 24 July 2026, and remains subject to further review.

The proposed 10% rate places Malaysia in the lower tier of a broader set of measures being considered across 60 countries under investigation. According to the USTR framework, countries with commitments to implement forced labour import prohibition mechanisms are being considered for more favourable treatment compared to those without such commitments.

Malaysia’s placement in this category is linked to its commitment under the Agreement on Reciprocal Trade (ART) with the US to develop a forced labour import prohibition framework.

Countries without such commitments are reported to face a higher proposed tariff rate of 12.5%.

Clarification on scope of findings

According to MITI, the USTR findings do not allege that forced labour is practised in Malaysia, nor do they assess domestic labour conditions.

Instead, the focus of the report is that Malaysia has yet to have a specific specific import prohibition law to screen goods and raw materials entering Malaysia from third countries with forced labour content. 

In response, the Malaysian Government has stated that it is actively working to address this regulatory gap.

At the same time, Malaysia maintains that it already has a comprehensive domestic legal framework addressing forced labour and worker protection. This includes, among others, the Anti-Trafficking in Persons and Anti-Smuggling of Migrants Act 2007, the Employment Act 1955, the Workers’ Minimum Standards of Housing and Amenities (Amendment) Act 2021, and the National Wages Consultative Council Act 2011, all enforced by relevant authorities.

No final tariff decision yet

The proposed 10% tariff remains subject to the full Section 301 process and is not final. It will only be confirmed after the USTR completes its review and issues a formal determination following public consultation.

The current consultation timeline includes:

1. Requests to appear at hearings due by 22 June 2026
2. Written submissions due by 6 July 2026
3. Public hearings scheduled for 7 July 2026

A final decision is expected in late July 2026, around the time the temporary Section 122 tariff expires. If implemented, any Section 301 tariff would take effect after that point.

Malaysia has stated it will continue engaging with the USTR throughout the process, including participation in hearings and submission of written representations.

Separate review on industrial capacity

In a separate strand of the Section 301 investigation, Malaysia is also being reviewed on concerns related to industrial overcapacity.

Malaysia’s position is that it does not have excess industrial capacity that distorts global markets, and that its production levels reflect genuine market demand. The government has submitted supporting data and will continue to defend this position through the review process.

As of now, the USTR has not issued findings or proposed measures in relation to this aspect of the investigation.