By Collins Chong Yew Keat

KUALA LUMPUR, Malaysia: Malaysia will get long term tangible and intangible benefits not only from the Agreement on Reciprocal Trade (ART), but most importantly on the multi-faceted positive safeguard of our economic, security, technological and geopolitical strength and needs through enhanced ties with the US. 

Trump’s presence in Kuala Lumpur is a strong message to the country and the region, that Washington is now back investing its presence in this region, and that Malaysia lies at the central stage to this strategy.

The ART provides access to U.S. technologies, investments, and standards that will elevate Malaysia’s economic competitiveness. Technology defines power, and by aligning with the world’s most powerful tech hub, Malaysia naturally stands to gain. 

The U.S. provides the perfect needed fallback to escape the Chinese dependence trap on technology, extractive capacity and capital.

Washington could increase the tariffs proportionately or in higher terms if Malaysia is not committing to a fairer trade system, but  rates remain lower now at 19 percent, the ART is grounded on rules-based capacity with transparent framework and regulatory oversight, something which is lacking with other countries’ overtures. 

The agreement is a resilience pact, with emphasis on supply chain security in semiconductors, rare earths, and energy technologies - all sectors where Southeast Asia and Malaysia seek to move up the value chain.

On the chain impact, it will aim to harmonise regulatory practices, further link up our national productivity growth with interoperability with U.S. and global markets.

It is also not an exclusive partnership and nothing in the ART prevents Malaysia from deepening relations with other countries. It is not an “either/or” alignment.

It synergises with both Southeast Asia’s economic potential and constraints and Malaysia will gain: value-chain upgrading, talent and technology mobility, and geopolitical and security benefits. 

Southeast Asia is mired in a structural trap: largely middle income with dependence on resource extraction, export based model, low-cost labour, and mid-tier manufacturing as the main fundamentals. With the U.S. it can now move into high-value, technology-driven segments.

Expanding access to high-end U.S. technologies, attracting advanced manufacturing and semiconductor investment with tech and expertise transfer and the training of local talents and workforce will be beneficial to us. 

ART complements with Malaysia’s National Semiconductor Strategy, rare-earth downstream objectives, and efforts to become the region’s advanced manufacturing hub. It also complements our New Industrial Masterplan and our overall quest to escape our middle income trap with emphasis on high tech manufacturing with energy transition.

The region is suffering from demographic decline, in terms of talent bottlenecks, an increasingly ageing population, brain drain and shortage of high tech skills and high skilled talents. 

This ART framework provides talent circulation and expertise transfer.

The U.S. brings not only the needed technological and knowledge transfer capacity, but most importantly, the values-based mechanisms and structural framework based on the pillars of trust, oversight, standards and rights compliance. 

This further integrates the U.S. presence in this region in providing the needed economic and security umbrella.

The U.S. market matters more than ever now, where it remains the largest consumer economy in the world with a GDP of $30 trillion and a purchasing power unmatched globally. 

The U.S. imports per annum almost matches  the entire combined GDP of ASEAN members at almost USD4 trillion. For an export-dependent country like Malaysia, this market is oxygen, and a lifeline for the economy, jobs, social mobility and income levels. 

In 2024, the U.S. became one of Malaysia’s largest export markets, with over RM195 billion in goods exported. Malaysia’s electric and electrical sector including the semiconductor industry shipped over RM119 billion in products to the U.S., and is projected to rise by 20 percent from the new tariff structure.

Zero-tariff access for certain Malaysian exports and items, especially in the fields of electronics, halal food, pharmaceuticals, rubber, palm oil, and green-tech components will create further positive chain impact and the millions of jobs that they hold. 

The zero-tariff access gained will outperform CPTPP and RCEP gains combined, according to MITI estimates.

There is capacity to enjoy an even bigger demand from the U.S. with renewed purchasing power under Trump’s policies that brought wealth back to the U.S. and controlling inflation.

The expanded exports for our rubber and palm oil will be further boosted by the massive new purchasing demand from the US market, to circumvent the reliance on China and Europe, and bringing direct benefits to our palm oil stakeholders and planters. 

Trump’s economic revival plan via tax incentives, deregulation, and reshoring will indirectly also enhance Malaysia’s growth  by opening new supply chains that need agile, high-skill partners. For Malaysia, Trump’s leadership means a predictable, pro-business alternative to China posture.

Positive Chain Effects from Critical Minerals’ Resilience

The new partnership will commit the U.S. to investing more in downstream processing, skills training, and tech transfer, and not just extraction. More importantly, this will protect against Chinese monopolistic pricing.

Malaysia sits on more than 16 million tonnes of rare earth deposits, which form the new frontier of global geopolitical yearning and competition. However, we lack the downstream capabilities to refine and produce semiconductor-grade materials. 

There is greater tech know-how and access to critical minerals R&D funding through the U.S. Defense Production Act. The transfer of high-purity processing tech, currently blocked by China’s export controls, will elevate Malaysia’s rare earths industry.

The existing capacity of the Lynas processing plant, can be further integrated into the new ecosystem of a robust and trusted bulwark of a  critical minerals supply hub, one that is anchored on values and rules-based normative framework, as opposed to current gap and dominance on this industry by China.

President Donald Trump has been strategic in securing a new critical minerals bulwark in this region, from Australia to Malaysia and Japan, and in being part of this new critical minerals advancement in breaking away from the China-centric model of the industry.

The U.S. procurement for Malaysian refined materials could generate thousands of new high skilled jobs and anchor Malaysia as a global rare earth hub.

Malaysia’s security needs will be hugely amplified and bolstered, and secure our deterrence and protect our oil and gas assets in the disputed South China Sea and our RM300 billion in extractive value that lies under Malaysia’s rightful waters.

These violations of maritime law and challenges to our rights which are enshrined under the Exclusive Economic Zone rights are what threaten our sovereignty, not this ART agreement. 

Washington’s security commitment through defence support will significantly bolster Malaysia’s capacities and capabilities to protect our rights and territorial integrity. 

Since 2017, the U.S. has provided more than US$230 million (about RM1 billion) in maritime security assistance to regional partners, with Malaysia receiving a significant share through equipment transfers, training, and capacity-building programmes.

Unlike China’s approach which relies on infrastructure-for-resources swaps, U.S. investment in Malaysia is mainly private-sector led, tech-driven, and high value, which encourages transfer of tech and enhances local advancement. 

U.S. foreign direct investment is the largest in Malaysia, with RM32.8 billion in approvals in 2024 alone, and the ART will serve as the parallel enabler to greater spinoff values from the already expanding tech firms in Malaysia including  Intel, Oracle, and Google.

Why the US Maintains Economic Primacy over China

The U.S. maintains its position as the world's largest market and highest purchasing power holder because its economy operates through domestic consumption instead of state-controlled investment. 

The U.S. consumer market alone exceeds China's entire GDP value, at US$19 trillion where China’s GDP is at around U.S. $18 trillion while U.S. household spending makes up 27 percent of worldwide consumption compared to China's 14 percent.

The United States maintains a higher GDP per capita at US$80,000 than China does at US$13,000 because its economy demonstrates stronger domestic spending power and better resistance to market fluctuations. 

The US maintains its position as the world's leading economic power because of its young workforce and its capital markets and its ability to draw 50 percent of global venture capital investments. 

China faces multiple structural challenges because its population decline continues while fertility rates have dropped to 0.97 and youth unemployment reached 21 percent before 2023 and property values decreased by US$3 trillion. 

Property sector collapse wiped out US$3 trillion in household wealth, and total non-financial debt per GDP ratio is more than 300 percent. 

China’s GDP growth forecast for 2025 is below 4 percent, according to the IMF, and with continuous downturn in domestic demand and purchasing power. 

The internal challenges facing China damage its ability to generate domestic consumption while the United States operates as the world's most affluent and open investment-driven consumer economy which will maintain its position as the largest market with strongest purchasing power in decades to come.

In this regard, only the U.S. offers the capital, technology, and market access needed to upscale AI, green tech, and digital industries, create new semiconductor design firms, develop clean-energy supply chains, and integrate into defence-grade electronics ecosystems.

The Malaysia–US ART is not a threat, but to future proof our future and to empower Malaysia and Southeast Asia to ascend the value chain.

The real question is not whether ART undermines Malaysia’s interests, but whether Malaysia can afford not to strengthen its resilience, readiness and deterrence at a time when economic security, resource security, technology access, crisis preparedness, and strategic diversification define the survival of middle powers like Malaysia. 

*Collins Chong Yew Keat is a foreign affairs and strategy analyst and author in University of Malaya.*