What Malaysia can do to align with Washington’s chip export curbs

By The Straits Times | Created at 2025-03-31 07:53:54 | Updated at 2025-04-01 23:57:34 1 day ago

KUALA LUMPUR - While Malaysia lacks the legal framework to enforce export controls on prized artificial intelligence (AI) chips on behalf of the United States, it can help break up chip smuggling operations in other ways, according to analysts and trade officials.

Kuala Lumpur can react to tip-offs from Washington and take action against the parties involved.

Conversely, it can supply information back to the US and in the case of AI chips, to the likes of tech firm Nvidia whose powerful processing units are the most sought after in the industry. This would allow controls and sanctions to be implemented within the US against errant entities.

A top government source told The Straits Times that it is common for the authorities in Malaysia to act on credible information from other jurisdictions, including Washington, and assist in curbing illicit activity.

“If the US tells us a company is circumventing their controls, even if it is specifically not a crime in Malaysia, it is usually the case that they will be engaged in falsifying customs or income declarations,” the official said on condition of anonymity due to the sensitivity of such diplomatic arrangements.

“As long as we cripple the operations, Washington will be happy.”

Former deputy international trade and industry minister Ong Kian Ming confirmed that this was a possible line of action, similar to how Singapore had charged three men in February and March for fraud in misrepresenting who was the final user of Nvidia chips they had secured.

“What I think the US is hoping for, is for us to hand over, or make public information on entities selling to China, then they will block these entities. Nvidia too will remove you as a customer to abide by US rules,” Dr Ong, who is now a Malaysian Investment Development Authority board member, told ST.

Concern in the US over AI chips being smuggled into China via other Asian transit points was sparked in January when the US announced new restrictions on their export and began probing whether countries like Singapore were being used as transit points to circumvent these restrictions.

Attention later turned to Malaysia after Singapore Home Affairs and Law Minister K. Shanmugam said on March 3 that servers with Nvidia chips exported to Malaysia were possibly meant for a different final destination.

However, Malaysia’s Investment, Trade and Industry Minister Tengku Zafrul Aziz said in a Financial Times interview published on March 24 that while the US believed that the Nvidia chips in the Singapore case eventually ended up in China, local investigations found no evidence they arrived at the Malaysian data centre that they were purportedly sold to.

Malaysia, like most other countries, have laws that allow for export restrictions due to security, which can usually be invoked if items are found to be used for military or terror applications.

The US had been able to follow up on trade restrictions against China by getting allies such as Japan and the Netherlands to apply controls on advanced semiconductor technology, although they did not specifically name China as the target.

In comparison, non-aligned countries like Malaysia are unlikely to implement such unilateral sanctions. Malaysian government sources told ST that Washington must be able to provide a strong rationale as to why these AI chips should be seen as security threats if they ended up in Chinese hands.

Nonetheless, with US President Donald Trump set to unveil tariffs that he said would target all countries on April 2, Kuala Lumpur is keen not to be hit unnecessarily over geopolitical reasons, according to these officials.

Malaysia already has at least two multi-ministerial committees looking at chip-related trade issues. A data centre task force which includes the customs department is directly looking at supply chain regulations, while a National Geoeocomic Command Centre was formed on March 24 after a meeting chaired by Prime Minister Anwar Ibrahim.

“This is an important initiative to monitor tariffs, blocks and supply chain risks… and build credibility as a neutral trading partner to all major powers,” said Datuk Seri Zafrul in a social media posting after the meeting.

It is unclear if the Anwar administration is amenable to actively helping the US maintain its leadership in AI over the rest of the world, especially China.

The premier has significantly cultivated the Asian superpower in his 28 months in power, culminating with the expected visit of President Xi Jinping in mid-April, the Chinese leader’s first to Kuala Lumpur in a dozen years.

While Mr Zafrul was cited by the FT as confirming that Malaysia would tighten regulations on semiconductors given Washington’s demands, he also stressed that tracking the flow of chips in a complex global supply chain was not an easy task.

The semiconductor industry is an important part of Malaysia’s economy, with electrical and electronic products making up 40 per cent of exports.

Institute of Strategic and International Studies’ cyber and technology policy programme director Farlina Said said given how crucial Malaysia’s semiconductor industry is, the country has to take into account that “the only international supply chain is the one that goes back to the US”, whereas the Chinese one is focused on self-sufficiency,

“Our narrative is (that) we want to move up the value chain… our best bet actually goes back to our Western partners,” she told ST, unless President Xi “comes (to Kuala Lumpur) with a way to fortify our semiconductor ambitions”.