Malaysia–US trade deal brings tariff clarity, strengthens critical minerals partnership

KUALA LUMPUR: Malaysia's newly signed Reciprocal Trade Agreement and Critical Minerals Memorandum of Understanding (MoU) with the United States mark a pivotal realignment in the nation's trade and investment strategy, offering long-term tariff certainty, deepening supply chain integration, and strengthening Malaysia's position in high-value sectors including automotive, semiconductors, and digital services.

CIMB Securities said the twin agreements – combining tariff clarity, regulatory alignment, and resource security – position Malaysia for "sustained economic complexity, industrial upgrading, and long-term investment growth."

"Malaysia's removal of export quotas on rare earth elements prioritises US investment in extraction and refining, positioning the country as a strategic partner for EV and semiconductor supply chains," CIMB said in a note.

The government has also earmarked RM10 million under the 2026 Budget to support international joint ventures, including projects led by Khazanah Nasional Bhd. Separately, Australia's Lynas Corporation recently signed an MoU with the Kelantan state government to secure future feedstock supply.

With an estimated 18.2 million tonnes of non-radioactive rare earth reserves valued at RM747.2 billion, Malaysia aims to leverage its resource base to attract high-value foreign investment and enhance industrial capacity in advanced technology sectors.

CIMB Securities added that the trade and minerals pacts collectively signal "a strategic recalibration of Malaysia's trade policy", reinforcing its status as a trusted and reliable partner in regional and global supply chains.

According to the Ministry of Investment, Trade and Industry (MITI), 1,711 Malaysian export products worth US$5.2 billion (RM22 billion) – equivalent to 1.1 per cent of gross domestic product (GDP) – will benefit from tariffs capped below 19 per cent, compared with the 24 per cent proposed earlier this year. These include key export segments such as palm oil, rubber, cocoa, pharmaceuticals, and aerospace components, while semiconductor exports will receive specific consideration under Section 232 of US trade provisions.

The agreements also strengthen commitments to environmental, social and governance (ESG) standards, intellectual property protection, labour rights, and digital trade liberalisation. Coordination between the US Treasury and Bank Negara Malaysia (BNM) will further ensure stable and equitable bilateral economic relations.

Beyond tariff relief, the trade pact brings significant clarity on non-tariff barriers (NTBs), paving the way for regulatory convergence and lower compliance costs across strategic industries such as automotive, digital services, Halal certification, pharmaceuticals, and logistics.

"Key sectors, including automotive and digital industries, gain policy clarity, while US firms secure reciprocal access to Malaysia's critical minerals and supply chains," CIMB Securities said.

Automotive and digital gains

In the automotive sector, Malaysia will now recognise US Federal Motor Vehicle Safety Standards (FMVSS), effectively removing import quotas previously imposed under the Approved Permit (AP) system, which capped foreign vehicle imports at 10 per cent of the domestic market. All US-made internal combustion engine (ICE) vehicles will qualify for the lowest excise duty rates, depending on engine size.

For digital services, Malaysia will not impose a digital services tax on US-based firms – a sector that generated RM1.6 billion in SToDS revenue in 2024 – and will lift broadcast restrictions while guaranteeing cross-border data transfer protections. These measures are expected to enhance Malaysia's appeal to US cloud, data centre, and fintech investors.

Streamlining Halal and regulatory standards

Under Halal certification rules, Malaysia will recognise certifications from US-based certifiers approved by the Department of Islamic Development Malaysia (JAKIM), while industrial products such as cosmetics and pharmaceuticals remain exempt.

For medical devices and pharmaceuticals, Malaysia will accept approvals from the US Food and Drug Administration (FDA), the Medical Device Single Audit Program (MDSAP), and the International Medical Device Regulators Forum (IMDRF), with reauthorisation required only if new safety concerns arise.

Trade facilitation and SST exemptions

Under transshipment and rules of origin, MITI will act as the sole certifier for exports to the US to prevent illicit transshipment – a policy clarified earlier this year.

Additionally, US agricultural and seafood imports worth RM3.1 billion in 2024 will be exempted from the Sales and Service Tax (SST), lowering import costs for Malaysian distributors and retailers.

CIMB Securities maintained its GDP growth forecasts for Malaysia at 4.3 per cent in 2025 and 4.1 per cent in 2026, noting that while short-term trade effects with the US may be neutral, the long-term outlook is highly positive.

The agreements are expected to spur foreign direct investment (FDI) inflows, particularly in digital services and critical minerals, and encourage greater export diversification and technological upgrading, it said.

Purchase commitments under the deal – including Boeing aircraft and energy products – are structured to avoid pressure on Malaysia's current account. However, increased LNG and coal import commitments could marginally displace trade volumes with key partners such as Indonesia, Australia, Kuwait, and Qatar, the firm said.

The US Treasury and BNM are finalising a mutual understanding on currency policy, with Malaysia maintaining its position off the US foreign exchange monitoring list. Strengthened ringgit fundamentals, a narrower current account surplus, and reduced central bank intervention align Malaysia's monetary framework more closely with advanced economies such as South Korea, CIMB Securities said.

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