PETALING JAYA: With the United States’ 24% reciprocal tariffs against Malaysia on the horizon, some economists say negotiating a Free Trade Agreement (FTA) between the two countries could be the next step forward.
Tunku Abdul Rahman University of Management and Technology’s Centre for Business and Policy Research chairperson Dr Foo Lee Peng said an FTA with the United States would be an opportunity to deepen bilateral economic ties while also easing any political tensions.
“An FTA with the US will allow us to tap into one of the world’s largest consumer markets and could also attract greater foreign direct investment into Malaysia.
“This could be beneficial for both countries by allowing Malaysia to position itself as a strategic hub for US businesses seeking access to Asean markets.”
However, she acknowledged the challenges faced in reaching an FTA with the United States which could include stricter commitments from Malaysia on labour standards, environmental protection, intellectual property rights, and digital regulations.
This could increase compliance costs for Malaysian businesses, particularly SMEs, and reduce the government’s flexibility in shaping domestic policies such as subsidies, she said.
Sunway University economics professor Dr Yeah Kim Leng said that pursuing an FTA with the United States would help both countries strengthen its relationship amid the growing worldwide furore.
He, however, said that such talks would be difficult unless Malaysia is willing to give more concessions to the United States, especially due to the Trump administration’s US-centric agenda.
To help make an FTA deal more attractive, Yeah said the Federal Government could lower import tariffs for selected US goods, and increase imports of high-technology capital goods such as aircraft and high-end chips.
“The Trump’s administration policy stance towards bilateral FTAs could be an impediment to such talks given the large number of trading partners they have.
“As such, they may not prioritise such talks with us, so we have to position ourselves among the countries that can provide greater impact and benefits to the US.”
Universiti Malaya economist Prof Dr Mohd Nazari Ismail noted that an FTA could lead to a bigger trade deficit for the United States against Malaysia.
“An FTA will lead to a bigger deficit for the US because more manufacturers from the US and other countries will relocate to Malaysia to gain from the zero tariff,” he said.
In 2006, the United States and Malaysia initiated negotiations for an FTA. The last round of talks ended in 2008 without any agreement reached.
