This article first appeared in The Edge Malaysia Weekly on November 3, 2025 - November 9, 2025

AFTER several months of negotiations, Malaysia on Oct 26 emerged as one of the first countries in Asia to conclude a reciprocal trade agreement with the US as the powerhouse economy steps up its “reciprocal tariff” push across the globe.

Even so, there have been mixed reactions as to whether Malaysia conceded too much or gained enough in the agreement. The jury is still out, but as some quarters have been quick to point out, undeniably, the world’s biggest economy was bargaining from a far greater position of strength.

Under the Malaysia-United States Agreement on Reciprocal Trade (ART), US-bound Malaysian imports will be subject to a 19% reciprocal tariff — a rate maintained from an announcement in September — albeit a decrease from the 25% tariff announced on “Liberation Day” on April 9.

In exchange, Malaysia will reduce tariffs on US goods ranging from chemicals, passenger vehicles, machinery and meat and dairy products. Malaysia will also invest US$70 billion (RM293 billion) in the US energy, telecommunications, transport and infrastructure sectors over the next 10 years, among other investments in the US, as well as manage trade barriers in order to provide preferential market access for US goods and adopt US trade restrictions such as tariffs to be applied to trading with third countries (see table).

On the same day, neighbouring Cambodia agreed to adopt US tariffs on other countries, as well as coordinate on tariff evasion, exports controls and other trade enforcement measures (reciprocal tariff: 19%; 49% earlier), while Thailand and Vietnam similarly agreed to finalise commitments related to supply chain resiliency in a Framework for an Agreement on Reciprocal, Fair and Balanced Trade. The tariffs on Thailand and Vietnam imports are set at 19% and 20% respectively, from 36% and 46% previously.

Meanwhile, Indonesia is still negotiating with the US to reduce palm oil tariffs to 0%, while Singapore’s Prime Minister Lawrence Wong says the nation’s talks with the US on semiconductor tariffs were “at a very early stage”, with no detailed discussions during the Asean Summit, and that it does not need a reciprocal tariff deal with the US due to its existing free trade agreement.

For Malaysia, the decision to sign reflects a practical, if cautious, calculation to secure continued access to the world’s largest consumer market amid escalating tariff threats from Washington, as emphasised by Minister of Investment, Trade and Industry Tengku Datuk Seri Zafrul Abdul Aziz.

After all, the US had signalled that without a deal, Malaysian exports could face duties as high as 25%, threatening key sectors such as electrical and electronics (E&E), palm oil and rubber. The ART, therefore, acts as both a shield and a bet — preventing immediate tariff escalation but binding Malaysia to US investments and regulatory commitments that go beyond trade in goods.

“The agreement was concluded under challenging conditions, as the US has imposed specific reciprocal tariffs on all countries. It should not be seen as a conventional free trade pact but one aimed at securing maximum tariff reductions. While sectoral tariffs remain outside the ART and uncertain, Malaysia’s commitment to supply chain security, especially in areas vital to US interests, could offer some flexibility in their treatment,” UOB Malaysia senior economist Julia Goh tells The Edge.

“The ART can be a game changer in its potential to drive domestic reforms. Beyond cutting tariffs and taxes, it also tackles ‘behind-the-border’ issues like licensing, digital trade and regulatory transparency — crucial steps towards cleaner governance and a more efficient market. We’re living in an era where protectionism and fragmentation are becoming the norm, and Malaysia is doing its best to navigate these challenges. Its ability to maintain a neutral stance in foreign trade will be tested if tensions between the US and China flare up again,” says Goh.

“The ART offers tangible advantages for Malaysian consumers, businesses and institutions. Several provisions, particularly in the annexes, could yield long-term benefits if implemented effectively,” says an economist who does not want to be named.

For now, what is clear from the ART is that up to 1,711 Malaysian export goods to the US will be eligible for a reciprocal tariff rate that’s lower than 19%, possibly 0%. The list, which includes palm oil, rubber, cocoa, as well as some pharmaceutical components and aerospace equipment, totals some US$5.2 billion of Malaysian exports to the US, accounting for about 12% of local exports to the US.

Beyond tariffs, the deal binds Malaysia to cooperate with US export-control and sanctions regimes, aligning it closely with Washington’s strategic interests. Malaysia also promises to facilitate up to US$70 billion in US investments and make large purchases — including US$3.4 billion a year in US liquefied natural gas and up to US$150 billion in US technology and equipment over five years — to reinforce bilateral industrial links.

Malaysia is also compelled to recognise US standards and certifications in several key sectors — healthcare, in which US Food and Drug Administration (FDA)-approved pharmaceuticals and medical devices can now enter Malaysia more easily; and food safety, in which Malaysia will treat US sanitary and phytosanitary systems as equivalent to its own Halal-Toyyiban standard.

“While this should speed up imports and reduce paperwork, it requires Jakim (Department of Islamic Development Malaysia) to coordinate carefully so that recognition of US halal certifiers does not dilute Malaysia’s Halal-Toyyiban standard. [Meanwhile], US-made vehicles that meet US safety and emissions standards will no longer require separate Malaysian testing. While these moves promise cheaper imports and faster market access, they also reduce Malaysia’s leverage to nurture local manufacturers and generic-drug producers,” observes the economist who does not want to be named. The economist points out that the US has made no reciprocal commitment to accept Malaysia’s own standards or certifying bodies and, in fact, retains the right to reimpose tariffs or terminate the agreement should Malaysia sign deals with countries deemed contrary to US interests.

Concerned quarters are of the view that Malaysia should have undergone extensive consultation to make sure that “all parties were consulted” prior to agreeing.

On the other hand, some economists contacted by The Edge affirm that Malaysia is allowed some flexibility for enforcement under domestic laws and a mutually agreed pace.

“How the US interprets and applies these terms remains uncertain and will become clearer over time. [In any case], Section 5.1 includes a clause that helps protect Malaysian businesses by targeting unfair trade from third countries that dump cheap or excess goods. It’s meant to curb transshipment and anti-dumping activities,” says UOB’s Goh.

Now, what remains unclear about the deal includes matters involving digital tax, data localisation and procurement, which are still in the talks.

“The play on words in the [agreement and communication to Malaysians] is rather unsettling. Lines like ‘the terms are not compulsory, but consultative’. What does that mean and who makes the final decision?” questioned Charles Anthony Santiago, former member of parliament for Klang (2008-2022). Like many who have voiced concern over the ART, Santiago views the agreement as Malaysia tilting towards Washington’s trade-security agenda, reinforcing perceptions that Malaysia conceded more than it gained.

Sunway University professor of economics Dr Yeah Kim Leng, who is also the president of Malaysian Economic Association (MEA) and one of five advisers in the Policy Advisory Committee to the Prime Minister (PMAC), articulates: “Given its stronger bargaining position, it is unsurprising that the US may be seen as having extracted more concessions while Malaysia gets to keep its trade and investment flows intact and awaits the promise of greater economic assistance and support. The subtle concessions involving prior consultation with the US are seen by several quarters as yielding too much or involving a loss of sovereignty. This interpretation however is open to argument as the detailed conditions of the agreement are not known or have yet to be worked out. Should future compliance turn out to be unfair or disadvantageous to Malaysia, it can still exercise its sovereignty and negotiate on a quid-pro-quo basis.”

Addressing concerns that Malaysia “willingly entered into the agreement that aligned it more closely with the US”, Yeah assures that the ART does not derail Malaysia’s long-standing stance of neutrality in geopolitics and geoeconomics, being open to trade and investments with all countries.

Yeah assures that concerns raised over sizeable future purchases of US goods, including airplanes, gas, coal and telecommunications equipment, and commitment to invest in the US can be managed since the capital and energy imports are needed to meet the country’s growing technology and long-term supply contracts.

“The impact of the requirement to consult the US in digital trade agreements with other countries as well as compliance with the US in imposing sanctions and prohibitions on countries targeted by the US remains ambiguous, especially when they are harmful to Malaysia’s interests,” he says.

“Given the unequal power relationships for small countries in negotiating with the world’s largest economy, it is hard for them to achieve a favourable outcome. In that sense, Malaysia is not alone and it will have to manage the negative fallouts, including reneging and triggering a renegotiation should the consequences turn out to be dire.”

See also “Critique demands a voice, execution demands a vision, courage and the scars of efforts”  

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