The BGA Malaysia Team, led by Senior Director Sadiq Noor Azlan, wrote an update to clients on trade talks between Malaysia and the United States.

Context

  • Investment, Trade and Industry (MITI) Minister Tengku Zafrul Tengku Abdul Aziz remains optimistic about the ongoing trade negotiations between Malaysia and the United States. This follows the letter Trump sent to Malaysia July 7, which announced a new tariff rate of 25 percent. The new rate — a decrease of 1 percentage point from the initial figure Trump announced in April — will take effect August 1. Tengku Zafrul has reiterated that Malaysia does not intend to retaliate and will continue to act in good faith to seek a fair solution as negotiations continue. Tengku Zafrul said Malaysia would continue to negotiate with the United States given the extended negotiating window for Malaysia. The Malaysian government is understood to have been blindsided by the new tariff announcement: Putrajaya expected to strike a deal that further reduced the rate.
  • Prime Minister Anwar Ibrahim met with U.S. Secretary of State Marco Rubio, who is in Kuala Lumpur for the Association of Southeast Asian Nations (ASEAN) foreign ministers’ meeting, July 10. Both sides had constructive talks, which touched upon reviewing the tariff rate, ending the conflict in Gaza and strengthening bilateral and U.S.-ASEAN cooperation. Specifically, they explored initiatives to strengthen cooperation on maritime law enforcement in the South China Sea, develop robust supply chains for critical minerals and bolster the security of artificial intelligence chip technologies.

Significance

  • BGA understands that despite both parties’ genuine interest in negotiating an agreement, Malaysia faces several challenges in meeting Washington’s demands. The U.S. requests would impact several economic sectors and include requirements to improve regulatory compliance on agricultural, trade, labor and environmental issues. Washington is also seeking Putrajaya’s cooperation on mitigating cross-border crime and transshipment, alongside removing market access barriers and enforcing technological safeguards for advanced technologies sourced from American firms.
  • Malaysian negotiators have repeatedly proposed improved concessions in the past few weeks with the hope of striking an agreement. However, the United States has remained adamant in its demands, and both sides have been unable to settle on a mutually agreed solution before the end of the 90-day tariff pause. Tengku Zafrul noted that MITI’s negotiators were firm on a few “red line” issues to “prioritize the nation’s interest and the people’s well-being.” These included ensuring that Malaysia acts fairly toward other trading partners and maintaining parity on socioeconomic matters.

Implications

  • Malaysia’s central bank Monetary Policy Committee reduced its overnight policy rate 25 basis points to 2.75 percent July 9 as a preemptive measure to maintain Malaysia’s steady economic growth trajectory. This was done partly in response to global economic uncertainty stemming from U.S. tariffs, alongside other geopolitical events.
  • Institutional investors suggest there may be a need to implement direct policy interventions to stabilize economic growth for the remainder of the year in the event that Malaysia is not able to avoid the tariffs. Proposed measures include the use of monetary easing and increased developmental spending to mitigate the economic impact of tariffs. Malaysia may also shift its focus toward the domestic market as it looks to offset a potential drop in export demand.

We will continue to keep you updated on tariff-related developments in Malaysia. If you have any comments or questions, please contact BGA Malaysia Senior Director Sadiq Noor Azlan at msadiq@bowergroupasia.com.

Best regards,

BGA Malaysia Team

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Senior Director

Sadiq brings his deep understanding of political dynamics and ability to recognize key government stakeholders to his role as director for BGA Malaysia. Sadiq joined BGA in mid-2019, after serving as special officer to the minister of finance under two different administrations. In addition to advising on topics ranging from the country’s annual budget, legislative procedures, subsidy rationalization and election campaigns, he managed engagement with other ministries, private and public agencies, government-linked companies and multinational corporations, foreign leaders, business chambers, media personnel and politicians. Sadiq obtained his bachelor’s degree in economics from the University of Massachusetts Amherst. He spent over ... Read More