Can Malaysia secure a deal?

AS we are just days away from Aug 1, 2025, the effective date when Malaysian exports to the United States will be subject to a 25% tariff rate, it is still a guessing game as to how negotiations between Malaysia and the United States will unfold and whether we will get a better deal or maintain the status quo.

For Malaysia, what is at stake is not just the final rate we will eventually settle on, but also what we are willing to sacrifice to secure a lower rate, as seen with countries like Vietnam, the Philippines, and Indonesia in the Asean region, and Japan, which has a revised rate of 15%.

Much has been spoken about non-trade barriers, the current tariff rate on certain US imports, our relatively high import and excise duties for the automotive sector, tobacco products, and liquor; the protective nature and limitations on foreign ownership in certain key economic sectors; and issues related to halal certification.

Based on this, there is so much at stake for Malaysia, and the question is what we are willing to “give in” to lower our current reciprocal rate of 25%.

Will Malaysia be buying more Boeing aeroplanes? Do we need US agriculture or farm imports?

Can we promise the United States to buy more US-manufactured goods at zero tariff?

Are we willing to allow higher equity ownership in certain key economic sectors?

With multiple issues at hand, it will be an uphill task to complete negotiations over the next few days, as it takes time and understanding from both parties due to the complex nature of Malaysian economic policies that may have a significant impact on us.

Unique nature

When it comes to trade negotiations, every country is unique.

For Malaysia, there are clear red lines we should not cross – for the sake of the nation’s future.

We must stand our ground and avoid giving in on areas where we believe local businesses and industries need protection.

A give-and-take strategy could be employed, where we may not fully agree with US demands but are willing to meet them at a certain point in addressing certain non-trade barriers.

These non-trade barriers, which the United States is focusing on, should not be deal-breakers as both countries can come to an understanding that will be a win-win for all.

For Indonesia or even Vietnam, it makes sense for them to engage in Trump-style deal-making and agree to certain US demands.

A similar example is the United Kingdom, where the United States agreed to lower tariffs on British-made automobiles, while the former allowed a tariff-free quota on US ethanol exports.

The United Kingdom also cut its 20% tariffs on US beef imports to zero and raised the quota to 13,000 tonnes. Meanwhile, the baseline tariff on other UK goods entering the United States was maintained at 10%, while tariffs on US exports to the United Kingdom were lowered from 5.1% to 1.8%.

Hence, each country is unique – and for Malaysia, it is a question of what we are willing to surrender to lower our reciprocal tariff rate to be more in line with the region.

A long road

Realistically, any trade negotiation between nations takes time.

It involves understanding the issues at hand and what each country is willing to give up to secure a deal.

With Trump, he has brought the art of deal-making to another level – demanding that countries yield to US terms. Trump’s idea of trade negotiation is that the rest of the world has “robbed” the United States for the longest time, and his solution is to impose tariffs on every nation.

For Trump, revenue from tariffs could reduce the US trade deficit as he believes that the rest of the world will be paying these tariffs.

However, as we are aware, it is the US consumers and businesses that are paying for these tariffs – not the exporting nations – unless there is a specific agreement to share the tariff burden between the exporter and the US importer.

Trump’s heavy-handed approach to trade negotiations is difficult for most countries to navigate.

Even after prolonged negotiations, he is known to arbitrarily impose a new figure, using it as a pressure tactic to extract more concessions.

While this strategy may appear to be “working” in the short term for the United States, the long-term costs will likely be borne by American consumers, global trade flows, international alliances, and future trade relationships between the United States and the rest of the world.

Even the International Monetary Fund (IMF) warned earlier this week that tariffs are not the answer to global imbalances.

While excessive deficits and surpluses can pose risks, the IMF emphasised that tariffs are not the appropriate remedy for trade deficit issues.

The IMF further opined that tariffs could lead to financial stress due to heightened risk on the back of escalating trade tensions.

Asia-Pacific response

In a survey conducted by Willis Towers Watson entitled “Adapting to Global Economic Shifts: Asia-Pacific Survey,” cost reduction – including a reduction in headcount – was the most common response, with 49% of respondents choosing this method to address the changing economic landscape due to tariffs.

Thirty-seven percent are looking to explore new markets within Asia, while 33% felt that diversifying supply chains in the region is key.

Reshoring to the United States was the least preferred option, with just 8% contemplating doing so.

Hence, it is unlikely that the United States is going to get big investments pouring in due to the tariffs.

Whatever reciprocal tariff rate that is ultimately imposed on Malaysian exporters will have implications on our competitiveness vis-à-vis our neighbours.

If the 25% rate stays, or even drops to the 20% Malaysia is currently lobbying for, businesses will need to pivot from the tariff issues and relook at ways to remain relevant.

Cost reduction, supply chain realignment, and exploring new markets are among the options at hand.