As a key node in several lead firms’ electronics production supply chains, Malaysia’s recent trade agreement with the United States presents an opportunity to attract increased investment from U.S. firms and for its firms to further integrate into regional lead firm supply chains from countries like South Korea and Taiwan. The agreement lowers import and export duties on electronics components, equipment, and machinery, and places limits on Malaysia’s ability to impose a digital transmission tax, incentivizing investment in digital infrastructure like data centers. 

Also included in the agreement is Section 2.9 on labor, which requires Malaysia to ban imported goods made with forced labor within two years. Commentators have interpreted these provisions as directed at China, given the wording of the agreement and the advisory role the U.S. may play with respect to how Malaysia enforces its ban.

However, even if Malaysia enacts a forced labor ban, it may not only be Chinese imports that attract enforcement. Many firms from Malaysia’s key regional trading partners, including the United States, have been accused of committing forced labor. India, another important trade partner for Malaysia, is estimated to have the highest prevalence of forced labor in the world. 

In the case of electronics production, and indeed across the manufacturing sector, investigations have uncovered forced migrant labor in Taiwan, too. And more recently, Taiwanese electronics firms have become key investors in Malaysia. These related trends, in combination with Malaysia potentially passing a robust forced labor import ban, could generate new risks for Taiwanese firms. Yet, if approached strategically, Malaysia’s law could also encourage policymakers and businesses in Taiwan, and across the region, to address the root causes of forced labor.

 The Taiwan-Malaysia Electronics Trade

In June 2024, the Taiwan Expo was held in Kuala Lumpur, reflecting the deepening trade and investment relationship between Malaysia and Taiwan. According to the Malaysia External Trade Development Corporation, Taiwan overtook Japan to become Malaysia’s fourth largest trading partner in 2024. Its exports to Taiwan grew by more than 54 percent, while Taiwanese imports grew by 30 percent, resulting in a trade relationship valued at roughly 176.10 billion Malaysian ringgit (around $34.49 billion). At the heart of that growth is the electronics sector, with electronics products accounting for 39 percent ($13.45 billion) of the value of Malaysian exports in 2024. 

Malaysia has long served as a key investment destination and production node for several Taiwanese electronics firms, and this relationship has only grown in recent years through partnerships with Malaysian firms specializing in semiconductor assembly, packaging, and testing. In 2024, the Taiwan Ministry of Finance........

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