Malaysia seeks win-win solution in US tariff negotiations

[MALAYSIA] The United States’ decision to scale back proposed tariffs on Malaysian goods to a baseline of 10% would be a welcome development, said Investment, Trade and Industry Minister Tengku Datuk Seri Zafrul Abdul Aziz, acknowledging that an earlier goal of a zero-duty outcome may be out of reach.

“A zero-tariff deal would have been ideal for Malaysian exporters, but the reality of international trade talks often demands compromise,” noted a senior trade analyst familiar with the matter. “While 10% isn’t perfect, it still marks a considerable improvement from the much higher tariffs initially floated, particularly for sectors like electronics and palm oil.”

Speaking to Bloomberg TV on the sidelines of a regional summit in Kuala Lumpur yesterday, Tengku Zafrul added, “To be fair, the United States has made clear that 10% is non-negotiable – it appears to be their floor.”

“For Malaysia, anything lower than the previously suggested 24%, or even holding at 10%, would be a positive outcome for our industries and exporters,” he said.

Malaysia has been engaged in discussions with Washington in an effort to lower the proposed tariffs, which come as part of the United States’ broader effort to recalibrate trade ties in Asia and curb China’s growing economic clout. As a key node in the global semiconductor supply chain, Malaysia has been navigating a delicate balancing act between maintaining robust ties with both Washington and Beijing.

In exchange for tariff relief, the Trump administration is pressing Malaysia to address trade imbalances, remove non-tariff barriers, and prevent sensitive U.S. technologies from being redirected through Malaysia to third countries.

South-East Asian nations, many of which are export-reliant, are among the most vulnerable to Washington’s tariff threats, with some rates proposed as high as 49%. Regional governments are racing to finalize agreements before the end of a 90-day suspension on the implementation of the new duties.

Malaysian industry groups have reacted with guarded optimism to the prospect of a reduced tariff rate, though they caution that ongoing uncertainty could pose risks to business planning. “Exporters require predictability to make long-term investment decisions,” said the head of the Malaysian Manufacturers Federation. “A consistent tariff regime benefits businesses on both sides of the Pacific.”

According to the Office of the U.S. Trade Representative, the U.S. registered a goods trade deficit of US$24.8 billion with Malaysia last year. Tengku Zafrul confirmed that Malaysian negotiators are preparing to resume discussions with their U.S. counterparts next week. “Our objective remains to achieve a win-win outcome,” he said, emphasizing that the United States remains Malaysia’s top export destination and largest source of foreign investment.

While tariffs remain a focal point, economists underscore the importance of Malaysia’s strategy to diversify its trade relationships. Recent efforts to deepen ties with the Middle East and ASEAN neighbors are viewed as crucial in mitigating risks tied to overdependence on any single market. “In today’s fractured global trade environment, regional integration is more important than ever,” said a researcher from a Kuala Lumpur-based think tank.

This week, South-East Asian leaders began two days of meetings aimed at strengthening economic cooperation with China and Gulf nations in the face of potential disruptions from U.S. trade policies.

Malaysia, for its part, has launched free trade agreement talks with the Gulf Cooperation Council and introduced tighter export controls to prevent sensitive goods from being rerouted through its ports to prohibited destinations.

To support compliance with U.S. regulations, Malaysia’s Investment, Trade and Industry Ministry announced that, as of May 6, it will be the sole authority issuing non-preferential certificates of origin for shipments bound for the U.S.

Amid U.S. concerns over possible transshipment of semiconductors to China via Malaysia, Washington has pressed for greater enforcement. Tengku Zafrul noted that authorities are responding proactively. “So far, the process has been smooth,” he said. “We’ve increased our capacity and resources to ensure no delays for Malaysian exporters trading with the United States.”