Kuala Lumpur, 31 October 2025: The Institute for Democracy and Economic Affairs (IDEAS) is concerned about both the outcomes and process surrounding the recently signed Agreement Between the United States and Malaysia on Reciprocal Trade (ART). The agreement may be framed as a partnership of equals but compels only Malaysia to make substantive policy commitments while reserving full flexibility for the United States’ trade policy.

The agreement is the latest affirmation of the Trump administration's power politics and its assault on international trade policies and governance that are designed to promote economic development. It includes tariffs that face legal challenges in the United States and lacks the sophisticated provisions and safeguards through which modern treaties facilitate trade between trusted partners. For example, there are no dispute settlement provisions, and a sweeping clause reserves the right to impose future trade remedies. The unusually fast and opaque negotiation process also sets an unwelcome precedent that raises questions on whether the short- and long-term impacts were properly assessed.

The ART is also a worrying departure from trade policies developed to advance mutually beneficial economic prosperity. Malaysia has long benefited from open trade and investment and foreign policy based on ASEAN centrality and non-alignment. The agreement raises serious questions about economic and foreign policy continuity by explicitly tying Malaysia’s trade and investment policies to the United States’ strategic interests. Malaysia is required to impose equivalent restrictions on third countries targeted by the United States for national security reasons, which most immediately threaten supply chains that include China. It is also required to impose remedial measures on Malaysia-based businesses owned by third countries whose activities harm the competitiveness of United States businesses in Malaysia or the United States.

Malaysia has undoubtedly gained some political goodwill with the Trump administration through concluding the ART, at least temporarily tempering the threat of further targeting. While the agreement provides no certainty surrounding future tariff policies, policymakers are counting on this goodwill to translate into preferential treatment under future punitive tariffs, particularly on semiconductors.

Conversely, the agreement constrains Malaysia’s capacity to forge wider trade partnerships. It ties future trade and investment policies to America’s strategic interests and guarantees equivalent trade policy treatment for the United States in future industries such as digital services. While Malaysia was not alone in pursuing a bilateral deal with Washington, doing so prioritised individual over collective interest and diverted diplomatic resources away from securing deeper partnerships with countries that are more closely aligned with Malaysia’s economic development interests. Malaysia’s otherwise strong leadership of ASEAN this year was dented by a deal that undermines ASEAN centrality and hurts regional partners that lack the platform and resources to secure their own deals, or have chosen to walk away from similarly lopsided agreements.

Another concerning aspect of the agreement is that it embeds deep and binding alignment with the United States’ administrative systems at a time when they face irreparable damage. Malaysia is required to accept US Food and Drug Administration (FDA) and related approvals for pharmaceuticals, medical devices and certain foods, while also recognising US Department of Agriculture (USDA) and private certifiers for halal and food-safety systems. While such measures would ordinarily be welcomed for speeding up imports, the ongoing government shutdown in the United States and the Trump administration’s assault on government and legal institutions raise serious doubts as to their reliability as gatekeepers for the food, medical, and religious interests and safety of Malaysians.

Notably, potentially positive regulatory streamlining is occurring only under external pressure, not through cooperation with friendly nations. In addition to mutual recognition of the above standards, the ART incorporates provisions around good regulatory practices, state-owned enterprise competitiveness, labour rights and environmental protection that bring Malaysia into greater alignment with global best practices. There is some hope that the ART provides precedent for wider adoption with ASEAN and other partner countries.

Finally, while market access provisions such as tariff rates dominate the headlines, they provide Malaysia with little reason to celebrate. Malaysia removed tariffs on US imports, but there were few to begin with, with greater concessions made in other aspects of the agreement. The concessions have enshrined a 19% tariff rate on a substantial range of goods exports that faced no tariffs before Trump took office. This includes the goods celebrated as being zero-rated under the ART. Moreover, there is no guarantee that market access commitments will remain as agreed for Malaysian businesses — should a future tariff on semiconductors apply to Malaysia, it would wipe out any perceived gains from the ART.

“Ultimately, the agreement has not been subject to public accountability processes, undermines Malaysia’s regional and global economic interests, and ties Malaysia’s economic policies to the United States’ strategic interests while validating a 19% tariff on most Malaysian exports,” said Dr Stewart Nixon, Deputy Director of Research at IDEAS.

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