Trade War Monitor, Oct. 6: U.S. Tariffs Drive Chinese Companies to Malaysia

The U.S. Commerce Department has introduced a new measure to close a significant loophole in export controls, which now extends restrictions to any majority-owned subsidiary of a blacklisted firm. This revision significantly tightens U.S. export regulations, making it harder for Chinese technology companies already subject to restrictions to bypass them by conducting operations through subsidiaries. Previously, only entities individually named on U.S. sanction lists were subject to controls; now, any company 50% or more owned by a blacklisted entity, including those listed for military end-use or under certain sanctions, will face the same restrictions. This action reflects Washington’s expanding efforts to limit technology transfer to Chinese tech giants[para. 1][para. 6][para. 7][para. 8].

Alongside these export controls, Trump administration officials have introduced a new industrial policy aimed at drastically reducing U.S. reliance on advanced semiconductors from Taiwan by at least half. This ambitious initiative reflects national security concerns, as Taiwan currently produces 95% of the world’s most advanced semiconductor chips. The administration hopes to reshore semiconductor production, setting a target of having at least 50% of the nation’s advanced chips manufactured domestically or in allied nations such as Japan and some Middle Eastern countries. Commerce Secretary Lutnick and Treasury Secretary Scott Bessent have reiterated the urgency of these measures to secure America’s critical supply chains and reduce exposure to geopolitical risks in East Asia[para. 2][para. 10][para. 11][para. 12].

China has responded with an array of counter-strategies. Notably, China has introduced a new “K-visa” category to attract young, foreign STEM (science, technology, engineering, mathematics) professionals. Announced by the foreign ministry and included in regulations revised in August, the K-visa move is designed to offset growing difficulties Chinese firms face in hiring top talent abroad, particularly as the U.S. increases costs and restrictions on employing foreign high-skilled workers. Through such policies, China aims to bolster its own technological expertise and make its innovation ecosystem more attractive amid escalating technological competition with America[para. 3][para. 17][para. 18][para. 19].

On a trade level, Chinese companies are increasingly investing in Southeast Asia, especially Malaysia, as a way to navigate U.S. tariffs and diversify supply chains. Demand for China-Malaysia business travel has surged, reflecting this pivot. Malaysia’s government incentives and closer ties to Beijing are resulting in more foreign direct investment, benefitting industries like semiconductors, electric vehicles, and infrastructure. This investment is transforming Malaysia into a key hub for global manufacturing and supply chain realignment as Chinese firms seek to lessen the impact of U.S. tariffs by relocating or expanding their overseas operations[para. 4][para. 14][para. 15].

In terms of internal economic dynamics, China’s high-tech sectors, particularly biomedicine, are becoming increasingly important to the nation’s economy. According to the Caixin BBD New Economy Index, new economy industries now account for 31.2% of China’s overall economic inputs, an increase from the previous month. The index measures the contribution of emerging industries using indicators for labor, technology, and capital, reflecting China’s ongoing emphasis on moving up the value chain through innovation and technological development[para. 21][para. 22][para. 23].