KUALA LUMPUR – Malaysia inked a trade deal with the US with President Donald Trump in attendance on the sidelines of the 47th Asean Summit on Oct 26, locking in a 19 per cent tariff rate that was agreed back in August.

The deal included several concessions made by Prime Minister Anwar Ibrahim’s administration, including in the supply of critical minerals to the US, a key plank of ongoing trade negotiations between Washington and Beijing that centres on curbs of advanced technology supply chains.

US Trade Representative Jamieson Greer said the agreement ensures that trade investment in critical minerals between both sides “can be as free as possible and as resilient as possible”.

“We live in a world where having these critical minerals is important to our manufacturing, to our technology and to our economy. It is very important that we cooperate as willing partners with each other to ensure that we can have smooth supply chains.”

The 19 per cent tariff does not affect about 60 per cent of Malaysia’s RM200 billion (S$61.6 billion) of exports to the US such as semiconductors and pharmaceuticals, which are currently zero-rated by Washington.

A joint statement on the “agreement on reciprocal trade” confirmed a

– such as recognising American halal certification and the supply of rare earths, critical minerals used in advanced technological applications – to bring down the initial tariff of 25 per cent.

“Malaysia has committed to refrain from banning, or imposing quotas on, exports to the United States of critical minerals or rare earth elements,” said the statement.

Under the agreement, Malaysia will ensure no restrictions are placed on the sale of rare-earth magnets to American companies.

Malaysia has also pledged to expedite the development of its critical mineral and rare earth sectors in partnership with US firms, including granting extended operating licences to create business certainty for increased production capacity.

Malaysia has rare earth deposits of more than 16 million tonnes that are worth an estimated RM1 trillion. It currently supplies around 13 per cent of the global demand for critical minerals, including rare earths. Rare earth ore mined in Malaysia is currently exported to China, as Malaysia lacks the technology to process it.

At a press conference on Oct 26, Malaysia’s Investment, Trade and Industry Minister Tengku Zafrul Aziz lauded the trade deal as giving the country “better access” to the US market compared with previous agreements.

“We are looking at key industries for Malaysian exporters such as electrical and electronics, semiconductors, machinery, chemicals and petrochemicals and aerospace. By ensuring that trade flows between the two countries remain strong, this agreement will help provide greater certainty for exporters and importers,” he said.

Datuk Seri Zafrul also said Kuala Lumpur had secured 0 per cent tariffs on 1,711 tariff lines, which account for 12 per cent of Malaysia’s exports to Washington, worth US$5.2 billion (S$6.75 billion). These include rubber-based products, cocoa products, pharmaceuticals and palm oil.

Malaysia will also receive favourable consideration on semiconductors under Section 232 of the US Trade Expansion Act of 1962. The law allows the US president to impose restrictions on imported goods or to enter into negotiations with trading partners whose exports “threaten to impair” US national security following an investigation.

Malaysia recorded a goods trade surplus with the US of US$24.8 billion in 2024, according to data from the Office of the US Trade Representative. The US was also the top foreign investor in Malaysia that year.

However,

to require the government to adhere to certain trade policies, raising questions about Malaysia’s trade sovereignty. For instance, under the digital trade chapter of the agreement, Malaysia must consult the US before entering into a new digital trade agreement with another country that could jeopardise essential US interests.

Washington has made the pursuit of rare earths a key component of its national security strategy, as China dominates their production, and has used this to its advantage in responding to the trade war initiated by Mr Trump.

Rare earths are used in a wide range of technological equipment, from mobile phones and power generators to defence technology.

Since trade negotiations between Malaysia and the US kicked off in April, Malaysia has already increased its purchase of American gas and tightened controls on “origin washing” and the movement of artificial intelligence chips – curbs aimed at clamping down on Chinese evasion of trade sanctions.

However, Datuk Seri Anwar has said that interference with national economic policies such as the longstanding and politically sensitive equity quotas for bumiputeras – a term used to collectively refer to its Malay majority and indigenous tribes – was a “red line”.