Lessons from McKinsey 2025 for better tariff management among Malaysian companies

Tariffs are rising but most Malaysian SMEs overpay duty by 5–10%. McKinsey’s 2025 “geopolitical nerve-centre” model translates perfectly to Malaysia when paired with six local legal levers: correct HS codes, FTA rules-of-origin, free-zone duty deferral, price-adjustment clauses, sanctions screening and board-level oversight. This article shows how to execute each step.

Why care now? From 1 July, Malaysia widens its SST to cover many consumer goods, while U.S. ‘baseline’ tariffs and looming 50 % hikes plus the EU’s palm-oil due-diligence regime all converge on Malaysian exporters within the next six months.

1.   Why McKinsey’s tariff playbook matters to Malaysian exporters

McKinsey has advised Malaysian corporations and ministries for more than two decades and maintains a permanent Kuala Lumpur office. The firm’s brand recognition was reinforced in 2022, when the local media covered its 25-year milestone and the launch of QuantumBlack AI services. That reputation gives any McKinsey finding instant credibility with C-suites, lenders and regulators.

Tariff modelling, free-zone cash relief and sanctions screening – McKinsey’s three themes match Malaysia’s legal levers:

• Preferential tariffs under RCEP and CPTPP: available only if companies classify products correctly and clear proof-of-origin audits.
• Free-zone and bonded-warehouse regimes: powerful, yet underused cash-flow tools granted by Malaysian customs statutes.
• Sanctions and export-control exposure: no longer limited to defence goods, creating liability under the Strategic Trade Act 2010 for firms that re-export electronics with US-origin content.[1]

Positioning these local levers as the legal counterpart to McKinsey’s strategy narrative both grounds the discussion and highlights services that law firms – rather than consultants – are uniquely placed to deliver.

2.   Six legal levers that slash duty bills

2.1   HS-code accuracy: first step to zero duty

Correct HS codes are the bedrock of any tariff-saving plan, as the McKinsey model assumes – we couldn’t agree more.[2] Under the Customs Act 1967, wrongly declaring an HS code (mis-declaration) may trigger penalties of up to RM 500,000 and seizure of goods. Malaysian SMEs should establish an internal “HS-code register”, backed by Advance Rulings where the tariff line is ambiguous. Clear documentary trails reduce retroactive assessments and smooth preferential-rate claims under RCEP.

2.2   Rules-of-origin: unlocking RCEP & CPTPP savings

Preferential access under RCEP and CPTPP can cut the statutory rate from 10 % to zero on many intermediate goods – provided the exporter meets value-content or change-in-tariff-heading rules. McKinsey’s competitive-advantage matrix becomes actionable when paired with the Preferential Certificate-of-Origin Order 2022 and MITI guidance. Legal counsel should map each SKU against the relevant rule, flagging those that fail the test and recommending supply-chain tweaks (for example, localising final assembly) to “flip” the origin outcome.[3]

2.3   Free zones: duty deferred, cash preserved

Free zones let Malaysian exporters legally defer duty and protect cashflow. Malaysia’s Free Zones Act 1990 and the Customs Duties (Exemption) Order 2017 enable similar relief without overseas relocation. Locating high-value finishing steps inside Port Klang or Bayan Lepas zones defers duty until re-export, while domestic sales require duty payment only when goods leave the zone. Legal tasks include drafting lease agreements that respect free-zone licensing conditions and updating standard trading terms to reflect “ex-zone” delivery. The full benefits of the Johor-Singapore Special Economic Zone still need to be finally determined, but we already know at this stage that there is tremendous value waiting to be unlocked.

2.4   Price-adjustment clauses: sharing tariff risk

McKinsey encourages cost-pass-through modelling (although there is little drafting detail) – this is where legal advice helps: we help Malaysian SMEs in protecting their thin margins by inserting tariff-trigger clauses into supply contracts. A typical clause pegs the contract price to the applicable customs duty on the signature date and allows adjustment when duties rise beyond an agreed threshold.

Under Malaysian law, to withstand challenge under the Contracts Act 1950 and the doctrine of penalties, the clause should (i) apply symmetrically to duty decreases, (ii) confine adjustments to verifiable duty changes and (iii) set out a clear dispute-resolution path (e.g. AIAC arbitration or that of a truly international arbitral institution).

2.5   Sanctions & U.S. export-control risks for Malaysian electronics

The nerve-centre concept highlights growing sanctions complexity. For Malaysian exporters, breach risks now extend to secondary sanctions on resold components. Section 7 of the Strategic Trade Act 2010 mandates “reasonable precautions and due diligence” before exporting strategic items.[4] Embedding supplier self-assessment forms (tier-two questionnaires) and restricted-party screening software (denied-party lists) into the ERP – modest in cost compared with potential US de-risking losses – fulfils the statute while aligning with McKinsey’s cross-tier risk-mapping advice.[5]

2.6   Board-level trade-compliance governance in Malaysia: the trade compliance hub

McKinsey calls for C-suite accountability but leaves governance mechanics vague. Under Bursa Malaysia’s Listing Requirements, boards must oversee principal risks, including trade-compliance risk. Adopting a standing “Trade Compliance Hub” that reports quarterly to the Audit Committee satisfies both the letter of the Listing Rules and the spirit of McKinsey’s nerve-centre. Charters should articulate decision rights, escalation thresholds and a metrics suite – HS-code accuracy rate, duty-drawback claims realised and sanctions-match false-positive rate – that feeds into enterprise-risk dashboards.

We offer a complimentary 30-minute diagnostic consultation to review your current compliance settings. The session includes a high-level duty-exposure map and recommendations for next-step legal safeguards. Contact us at info@aqranvijandran.com for further details.

3.   Convert tariff turbulence into margin

Volatile duties can derail long-term supply commitments. Apart from price-adjustment clauses, Malaysian SMEs should:

• Draft tariff-triggered force-majeure provisions: narrow enough to avoid abuse yet explicit enough to capture sudden duty spikes that render performance uneconomic. Case law (Pacific Forests v Lin Wen Chih) confirms Malaysian courts will uphold narrowly tailored commercial impracticability defences.
• Stipulate “origin-maintenance obligations”: if preferential tariff treatment is critical, the supplier must warrant continued qualification under the chosen FTA and bear resulting duty if qualification lapses.
• Require advance notice of regulatory changes: a notice covenant of 15 business days allows contract partners time to invoke adjustment or termination mechanisms before losses accrue.

These clauses distribute tariff shocks contractually rather than leave them to post-hoc negotiation, thereby complementing the scenario exercises recommended in the McKinsey framework.

4.   Governance checklist – implementing a scaled Trade Compliance Hub

• Mandate and reporting line – explicit board resolution placing the Hub under the Chief Financial Officer, with dotted-line access to the Company Secretary for statutory filings.
• Core membership (minimum viable team) – one legal/compliance officer, one logistics specialist, one finance analyst.
• Cadence – fortnightly huddles for operational issues; quarterly board reporting tied to enterprise-risk registers.
• Tools – HS-code database, sanctions-screening software, origin-rule calculator and a simple dashboard in the existing ERP.
• Metrics – duty savings realised, preferential Certificate of Origin (CO) claims approved, number of Advance Rulings obtained, sanctions alerts cleared.

This “Hub-lite” model fulfils McKinsey’s governance principles while remaining affordable for firms with turnover below RM 200 million.

5.   Conclusion – turning turbulence into an advantage

McKinsey’s tariff playbook legitimises proactive trade-cost management at a strategic level. By grafting Malaysia-specific legal tools – from free-zone licences to RCEP certificates and sanctions compliance – onto that framework, SMEs can build resilience without Wall-Street budgets. Done well, legal structuring not only shields margins but also creates commercial edge: consistent HS-code accuracy, for instance, can shorten customs clearance and enhance on-time delivery scores.

Companies interested in benchmarking their current practices against the Trade Compliance Hub model may request a complimentary 30-minute diagnostic consultation. The session includes a high-level duty-exposure map and recommendations for next-step legal safeguards. Contact us at info@aqranvijandran.com for further details.

[1]           See Nvidia chip export-control risks for Malaysia for further background information and risks.

[2]           On that note, also see our recent write-up the new SST shifts effective 1 July 2025 and how this relates to HS-codes.

[3]           For a checklist on U.S. “Trump 2.0” tariffs and Malaysian FTA strategies, click here.

[4]           Free Malaysia Today interviewed the author on the revenue impact of U.S. sanctions earlier in 2025.

[5]           See our write-up on the sanctions risk for Malaysia’s ship-to-ship oil transfers for further background information.