The ART of the US-Malaysia trade deal

AS the ink dries from the signatures of Prime Minister Datuk Seri Anwar Ibrahim and US President Donald Trump on the updated US-Malaysia Agreement on Reciprocal Trade (ART), questions have been raised on how this will affect Malaysia’s trade.

On his recent maiden visit to the country, Trump, while appearing relaxed enough to dance at his welcome, wasted no time attending to official matters, among them finalising the trade deal with Malaysia.

Notably, some have argued that the ART will cost Malaysia up to US$240bil and is one-sided, while others have questioned if it would be easy to get rid of non-tariff barriers that have been a part of the economy for so long.

Most economists believe the ART – the acronym seemingly an ironic nod to Trump’s own famous book about making deals – will be neutral to positive for Malaysia’s trade and exports.

They believe the country certainly isn’t “drawing the short straw” of the agreement, but what transpired was a result of hyper-globalisation evolving to a more splintered but strategically aligned worldwide economy.

Their optimism, though, is not echoing throughout Malaysia’s business sector, with some industry players not convinced about the ART.

What the ART brings to the table

Investment strategist and country economist at IPP Global Wealth Mohd Sedek Jantan says the perception that Malaysia is on the losing end “is not quite right”.

He stresses that the agreement is not about one side conceding ground, but a reciprocal framework designed for mutual stability and long-term growth in an era of escalating global trade fragmentation.

“Consider the seismic shifts which have reshaped global trade over the past few years, including the US-China decoupling, episodic tariffs, export controls on critical technologies, and supply-chain disruptions driven by geopolitics.

“These have imposed what economists term ‘policy uncertainty premiums,’ deterring investment and inflating costs for exporters worldwide,” he tells StarBiz 7.

According to Mohd Sedek, Asean’s own experience underscores this, because despite resilient US export growth from US$243.7bil in 2020 to US$352.1bil in 2024, regional gross domestic product (GDP) gains which averaged 4.6% have been tempered by a 1.4% drag per 1% drop in global trade volumes.

“For Malaysia, with US$52.5bil in US exports in 2024, up 23.8% since 2020, such volatility has historically added RM2.8bil annually in export-cost uncertainty, particularly in high-tech sectors like electrical and electronics,” he points out.

More essentially, Mohd Sedek says the ART counters this head-on through “tariff symmetry”: reciprocal ceilings capping tariffs at a maximum of 19%, immediate duty-free access for 71% of Malaysia’s high-value exports such as semiconductors, medical devices, and palm-based downstream products worth RM180bil yearly, and phased reductions on US imports from 6.7% to lower than 3.2% by 2030.

These, coupled with built-in review clauses, mutual recognition of standards, and commitments on critical minerals and digital trade, the agreement institutionalises predictability by halving tariff variance from 7.1% in 2023 to lower than 3.5% by 2026, and shortening customs clearance from 62 to less than 36 hours, unlocking US$1.1bil to US$1.3bil in savings by 2030.

“This isn’t mere paperwork; it’s a ‘credibility dividend’,” says Mohd Sedek. “Predictable rules lower risk premiums, enabling firms to extend investment horizons in capital-intensive areas like semiconductors and green technology.”

Citing empirical evidence from the World Bank’s Trade Policy Uncertainty Index, the economist says it shows rule-based regimes boost export consistency by up to 25%.

For Malaysia, he reckons this translates to US$15bil to US$18bil in US foreign direct investment (FDI) inflows from 2025 to 2030, lifting investment-to-GDP ratio from 21% to 24%.

Chief market strategist for South-East Asia at Moomoo, Isaac Lim, believes the new agreement represents a recalibration of Malaysia’s role in the bilateral trade and investment relationship, one that comes with new opportunities and sharper obligations.

He says the ART will uplift industry standards and benefit employees in the long run by aligning cross-border practices and standards.

“What the deal really means for investors is that it sets a platform for Malaysia to deepen its global supply-chain integration and move up the value curve, but the gains will not be automatic.

“Execution risk, domestic reform momentum, and how Malaysian firms respond will determine the winners. The narrative shifts from just exporting volumes to exporting value, technology, and strategic relevance,” Lim cautions.

The consumer angle

While many worry that cheaper or higher-quality US products – particularly machinery, chemicals, electrical equipment, processed foods and green-tech inputs – might overwhelm Malaysian firms as tariffs fall, Mohd Sedek believes the situation is more balanced and ultimately favourable.

The ART’s phased implementation – spanning the Entry-into-Force (EIF), Year 5 (E5) and Year 9 (E9) stages – ensures gradual liberalisation. Reciprocal tariff caps, set at or below 19%, provide Malaysia’s sensitive sectors, such as agriculture and low-tech manufacturing, with time to adapt.

Crucially, Malaysia retains full sovereign rights under the agreement, including the ability to suspend or terminate it unilaterally if national interests are at stake. This ensures that economic flexibility and policy control remain firmly in Malaysia’s hands.

“For Malaysian consumers, the impact will be significant. The agreement is expected to lower tariffs on US imports such as dairy, poultry, vehicles, and certain agricultural products, reducing household costs by 3% to 5% on select goods.

“Additionally, it will enhance product quality and safety by ensuring compliance with FDA and Usda standards.”

Mohd Sedek emphasises that consumers will gain access to wider choice, improved standards and lower prices. This is without the risk of a surge in low-cost, low-quality goods. He clarifies that the agreement focuses on high-value, complementary US products rather than mass-market commodities, ensuring competition remains strategic rather than disruptive.

“US firms will mainly export premium, technology-driven goods such as precision tools, semiconductor machinery, and advanced medical equipment.

“Unlike other exporters that compete purely on price, the US focus is on innovation, quality, and safety – areas where Malaysia stands to gain through collaboration, not substitution,” he stresses.

Implication on trade numbers

With Malaysia currently holding a substantial trade surplus with the United States, driven in part by the former’s strong electrical and electronics exports and other manufactured goods, Moomoo’s Lim opines that with ART now entering into force, several dynamics could come into play.

On the upside, he says Malaysia’s exports to the US may grow in high value and strategic segments, such as in semiconductors, critical minerals and clean tech components, which could help maintain or even widen the surplus.

On the other hand, the trade deal opens up Malaysian markets to US industrial goods, agricultural exports and other imports under more favourable conditions, which he concedes likely means imports from the US could rise, potentially narrowing the surplus over time.

“As for the net outcome, it is unlikely that Malaysia’s surplus disappears overnight, but the composition of trade could shift. Investors should focus less on the headline surplus and more on which sectors are capturing value and how trade flows evolve,” says Lim.

Mohd Sedek expects total bilateral trade to rise from US$86bil in 2024 to between US$110bil and US$115bil by 2030, adding around US$20bil-US$25bil in new trade value over five years, as he also sees Malaysia’s trade surplus with the United States widening.

He says while US products will enter Malaysia more easily now, Malaysia’s exports will grow faster, because about 87% of Malaysian goods, including semiconductors, medical devices, palm-based downstream products and halal-certified consumer goods, will enjoy duty-free or near-zero tariffs.

“These sectors are projected to expand by 6% to 7% annually in electronics and 5% to 6% in machinery and green components.

“Our modelling also shows that the ART could lift Malaysia’s manufacturing gross value added (GVA) by 1.2% to 1.4% by 2030, adding roughly 0.5 percentage points to annual GDP growth,” says Mohd Sedek.

A manufacturing GVA is calculated by subtracting intermediate goods and services from the total value of manufactured goods.

Playing devil’s advocate, however, a trade negotiator who declined to be named, still believes Malaysia is on the receiving end of a 19% tariff.

“I am sad it has come to this, but there is not much we can do now,” says the negotiator, before adding that agreeing to this deal has limited Malaysia’s negotiating position in other pending free trade agreements.

“It does not feel like we are neutral anymore, especially as the country negotiates with the European Union and enhances its relationship with China. What if other countries demand the same? This has limited the policy space,” she tells StarBiz 7.

In response to many questions, the Investment, Trade and Industry Ministry (Miti) recently published some answers.

For instance, US-made vehicles that will now likely be cheaper in the market.

Industrial views on the ground

A local mechanic who only wanted to be known as Yap, says initially, there may be a slight uptake in car sales because of the excitement of the removal of tariffs.

Moreover, he says it could also be a status statement for many who may not have been able to afford US-made vehicles, before the signing of the ART.

“But people will also need to realise and understand everything else – car maintenance, replacement of parts, servicing. It is not just about the price of the car at the beginning but rather everything that follows,” Yap observes.

The local automotive sector, which has seen its share of upheavals in recent years, especially with the influx of Chinese brands, could be perceived as an industry that could be on a lookout.

However, industry veteran and group chief executive at Bermaz Auto Bhd, Datuk Francis Lee, is of the view that other than Tesla, other American vehicle brands such as General Motors, Chrysler or Ford could find it a challenge making inroads into Malaysia as these brands are not well received in the past.

“The only way we would see a change in this is if these cars can enter the Malaysian market without an approved permit, but we are not sure if this would happen. In any case, we believe American cars may not be cost-competitive here,” he tells StarBiz 7.

Lee further notes that any foreign vehicle that enters Malaysia would need to comply with the National Automotive Policy, which includes Chinese car companies.

“These companies have had a good run but would also need to toe the line, as Miti will be stricter, ensuring close compliance.”

Miti says the standard tests of all imported and domestically produced vehicles are to ensure they are safe for consumers, not to protect the domestic industry.

“If US-origin vehicles meet or exceed these standards, it demonstrates alignment with Malaysia’s policies and broadens the range of quality options available to consumers.

“Moreover, US vehicles typically occupy the premium, higher-priced segment targeting high-income consumers. As such, they do not compete directly with the local automotive manufacturers,” it notes.