October 28, 2025
PETALING JAYA – Economists say the newly formalised trade agreement with the United States brings much-needed clarity and certainty for exporters and investors, even as it opens the door to greater competition for local producers.
They noted that while the pact provides tariff stability and reinforces Malaysia’s position as a “China-plus-one” hub for trade and investment, it also exposes sectors such as agriculture and smaller manufacturers to stiffer competition from American imports.
Separately, an accompanying memorandum of understanding (MoU) on rare earth elements (REE) is seen as an opportunity for Malaysia to move up the critical minerals value chain.
However, experts warned that without technology transfer, advanced refining capabilities, and sustainable practices, Malaysia risks remaining a supplier of raw REEs – which has lower margins – while missing out on high-value processing.
US President Donald Trump flew into Kuala Lumpur on Sunday to attend the 47th Asean Summit and Related Summits, as well as to formalise the US–Malaysia Trade and Economic Cooperation Agreement.
The agreement covers a wide range of areas including tariffs, non-tariff barriers, digital trade, intellectual property, labour, environment, and critical sectors such as energy, infrastructure, and critical minerals.
Malaysia and the United States also signed an MoU on REE to cooperate on critical minerals supply chains, investment, processing, and recycling, without any binding financial commitments.
SPI Asset Management managing director Stephen Innes said the US–Malaysia deal provides a meaningful boost to Malaysia’s trade-diversification agenda and investor sentiment.
“By securing tariff certainty with the United States and coupling it with a minerals MoU, Malaysia sends a clear signal that it is open for business as a stable ‘China-plus-one’ hub for technology and supply-chain investment,” he told StarBiz.
“The deal reduces policy tail risk for exporters and manufacturers, and should begin to draw in fresh capital expenditure into mid-stream manufacturing and value-add services.” However, Innes said there is “no free lunch” in trade policy.
“While the US–Malaysia deal is a clear win for diversification and investor optics, it also cracks the door wider for competition that local industries may not be ready for,” he said, adding that agriculture and smaller manufacturers could feel the heat if cheaper or better-branded US products flood the market.
To note, the formalised agreement states that Malaysia shall provide “non-discriminatory or preferential” market access for US agricultural goods, exempt US exports of agricultural and seafood products from the sales and services tax, and recognise any US halal certifier approved by Department of Islamic Development Malaysia or Jakim for importation without additional requirements.
Under the deal, certain US farm goods such as pork, milk, and eggs will be allowed entry into Malaysia within specified annual tariff-rate quota limits, at reduced or zero duty rates. Imports beyond those quotas, however, will face the usual tariff levels.
Against this backdrop, food producers have raised concerns over safety oversight, competition, and market fairness – which Innes described as a “classic adjustment tax that comes with openness: short-term discomfort for the promise of long-term gain.”
Meanwhile, Sunway University Business School professor of economics Yeah Kim Leng said the formalised trade agreement “provides some clarity and certainty” for Malaysian exporters, giving visibility on how the country will navigate Trump-era tariffs for the rest of the year, at least.
“What’s left is for our industries to manage the impact of the tariffs,” Yeah said, adding that he believes Malaysia enjoys slightly more favourable tariff treatment compared with other Asean neighbours.
“Overall, Malaysia can live with it.”
Yeah noted that electrical and electronics (E&E) manufacturers, being largely unaffected, are expected to be key beneficiaries.
Similarly, Innes believes the most immediate beneficiaries are in the E&E sector, including back-end semiconductor assembly and testing, as well as allied specialty chemical producers.
On the minerals side, Innes highlighted that potential beneficiaries include players across the rare-earths value chain – particularly in refining, magnet manufacturing, and recycling.
He added that secondary beneficiaries include electric vehicle (EV) component makers, aerospace assemblers, logistics and industrial park developers, and port operators – all of whom stand to gain from new supply-chain anchoring in Malaysia.
However, Innes said that the minerals MoU comes with a catch.
“Malaysia gets capital and technology exposure, but if it doesn’t move up the chain into magnets, motors, or EV components, it risks being boxed in as a low-margin processor,” he said.
“The challenge now is less about signing new MoUs and more about ensuring Malaysia captures the value, not just the volume, while keeping enough policy room to navigate the next geopolitical pivot.”
Malaysia, which has over 16 million tonnes of rare earth deposits valued at an estimated RM1 trillion, currently supplies about 13% of global demand for critical minerals – but most of its rare-earth ore is exported to China due to a lack of local processing technology.
Additionally, Innes said the environmental and regulatory challenges are also “real”, spanning waste management, federal-state licensing, and the political sensitivity surrounding mining activity.
Yeah, meanwhile, said rare-earth minerals could potentially become one of Malaysia’s emerging industries, supporting growth momentum and export diversification. But similarly, he said the main hurdle is technology.
He noted that unless the United States transfers refining and processing technology equivalent or better than China’s – which controls over 80% of global rare-earth production – Malaysia may struggle to compete in terms of efficiency and cost-effectiveness.
“So, unless we can reach that level of processing technology, we will not be able to compete against other producers. All countries are now investing tremendously in rare earths, both through the private sector as well as government funding,” Yeah said.
Even the United States may not have all the necessary technology, he added, “making it a big question mark for Malaysia.”
“Without the technology, we may not have the ability to produce at a cost-competitive level,” he said.
However, Yeah said Lynas Rare Earths, an Australian company that operates the Lynas Advanced Materials Plant in Kuantan, provides a silver lining.
Lynas’s plant in Malaysia currently relies on rare-earth concentrate imported from Australia rather than local ores.
“The question is whether Lynas can increase production and whether it has the technology to process the rare earths found in Malaysia,” Yeah said.
He also cautioned that it is not just about processing technology – environmental impact is a major concern.
He said rare-earth processing can cause severe pollution, as seen with Asia Rare Earth Sdn Bhd, which processed radioactive materials in the 1980s at Bukit Merah and was ordered to shut down in 1985 after contamination caused health and environmental concerns.
Yeah added that most of Malaysia’s rare-earth resources are located in natural forests, making deforestation a major risk.