The Edge Malaysia (04/11/2025) - KUALA LUMPUR (Nov 4): The recently signed Agreement on Reciprocal Trade (ART) between Malaysia and the US could enhance local industries’ efficiency, innovation and product quality while strengthening their competitiveness in the American market, according to the Malaysia External Trade Development Corp (Matrade).

The national trade promotional arm under the Ministry of Investment, Trade and Industry (MITI) described the pact — formalised on Oct 26 between Prime Minister Datuk Seri Anwar Ibrahim and US President Donald Trump during the 47th Asean Summit — as a “major milestone” in Malaysia’s trade relations with the US, offering fair and balanced market access between both economies.

"Contrary to concerns that the ART could harm local businesses and small and medium enterprises (SMEs), the tariff reductions covering 98.4% of US goods will not significantly harm them as Malaysia has not fully eliminated import duties," Matrade said in a statement on Tuesday.

"The average duty remains around 7%, with more than half of all imports already duty-free. Reductions apply only to selected US goods and will be phased in over up to nine years while products that previously faced high tariffs (up to 60%) will still retain moderate rates of 5%–15%," it added.

Furthermore, Matrade said that by ensuring trade stability with the US, the agreement not only safeguards local industries and jobs but also encourages Malaysian exporters to become more competitive and innovative, aligning with international expectations in areas such as environmental, social and governance (ESG) standards.

"Overall, the ART serves as a catalyst for enhancing product quality, sustainability practices and the global credibility of Malaysian exports," the agency said.

Under the agreement, Malaysia committed not to ban or impose quotas on exports of critical minerals or rare earth elements to the US while ensuring no restrictions on the sale of rare earth magnets to American companies.

The pact also includes commitments to expedite development of the sector in partnership with US firms, with extended operating licences to provide regulatory certainty.

Other key provisions include Malaysia granting preferential market access for US industrial and agricultural exports while the US maintains a 19% reciprocal tariff on Malaysian-origin goods, unchanged from the rate first announced in August.

Trade impact and tariff certainty

Matrade said the agreement would secure US market access for Malaysian exporters and provide “certainty in the form of a lower reciprocal tariff of 19%, down from the previously proposed 25%.”

“This enables enhanced pricing competitiveness and a stabilised cost structure for exporters, which paves the way for higher exports, particularly in sectors exempted from the reciprocal tariff,” it said.

According to Matrade, the agreement offers tariff exemptions for 1,711 Malaysian export product lines valued at US$5.2 billion (RM21.83 billion) or about 12% of total exports to the US in 2024. These include key commodities such as palm oil, rubber goods, cocoa, aircraft components and pharmaceuticals.

It argued that without the pact, Malaysian exports could face steep reciprocal tariffs of up to 50% under the US Trade Expansion Act, warning that this could disrupt major sectors such as electronics, aerospace and rubber, threatening millions of jobs and thousands of SMEs.

The agreement has drawn criticism from opposition politicians, economists and NGOs, with detractors accusing the government of compromising national sovereignty.

Critics argue that the commitments on critical minerals could expose Malaysia’s strategic resources to foreign dependence and limit domestic policy flexibility.

Still, Matrade maintains that the deal marks a "pivotal step" toward strengthening Malaysia’s position in the global marketplace by securing fair and stable access to the US market.

Expanding Malaysia's footprint in the US

The US is Malaysia’s third-largest trading partner and second-largest export market after Singapore. Malaysia’s exports to the US totalled RM198.91 billion in 2024 and RM166.38 billion in the first nine months of 2025.

Matrade said it plans to intensify export promotion through partnerships with industry associations and major US corporations such as Amazon and Deloitte, as well as via trade and investment missions to the US.

“Beyond tariff relief, the agreement strengthens regulatory certainty and supply-chain resilience through deeper cooperation in trade facilitation.

"This reinforces Malaysia’s reputation as a reliable production and sourcing hub for US companies, giving Malaysian firms a distinct competitive edge within Asean," it said.

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