Malaysia earns reduced US tariff with US$150bn tech procurement agreement

Malaysia has avoided a 25% tariff on its exports to the United States by agreeing in principle to spend up to US$150bn over the next five years buying high-end semiconductor, aerospace and data‑centre equipment from US multinationals.

Under the Agreement on Reciprocal Trade, of which the details are due to be confirmed soon, Washington will cut its proposed levy on Malaysian goods to 19%, with the tariff kicking in on 8 August. Along with the purchasing promise, Malaysia will also reduce or eliminate tariffs on around 98% of US imports, ease some non‑tariff barriers, and drop a requirement that US social media platforms and cloud service providers contribute part of their Malaysian revenues to a state fund.

Additionally, the Malaysian government has committed to invest US$70bn in the US over the next 10 years, while state-owned energy company Tenaga Nasional will buy US$42.6mn in US coal each year and state energy firm Petronas will buy US$3.4bn worth of liquefied natural gas annually.

The US is one of Malaysia’s top export destinations, along with Singapore and China, with Malaysian imports into the US totalling US$52.5bn in 2024, up nearly 14% from the previous year.

The new agreement could benefit Malaysian small and medium-sized enterprises (SMEs) – especially in manufacturing, electronics and consumer goods – as they face fewer barriers and better price competitiveness in the US, while also setting up Malaysia as a potential strategic partner in US-linked supply chains amid a broader shift away from China.

However, it could also potentially squeeze local market share for Malaysian businesses, as the removal of tariffs on US goods could make American products cheaper in the Malaysian market.

While noting that Malaysia had hoped for a lower tariff, the country’s investment, trade and industry minister Tengku Zafrul Aziz called the deal “reasonable”, stressing that “among Asean countries, Malaysian goods remain competitive in the US market”.

Addressing concerns that Malaysia had made too many concessions to the US, Tengku Zafrul noted that the two nations had committed to strengthening enforcement in areas such as intellectual property and labour rights, environmental protections and sustainable fisheries management.

“I want to stress that Malaysia has not relaxed any controls or conditions that would compromise the rights of the people or the sustainability of local industries,” he said.