Malaysia Agreed to $150B in Purchases as Part of US Tariff Deal: Minister
Late last week, U.S. President Donald Trump announced updated tariff rates for 67 nations, including nine from Southeast Asia, which are set to come into effect on August 7. However, given the unpredictability of the Trump administration and the speed of the negotiations that preceded last week's announcement, there is a lot that we don't know about these figures, and how they will affect each nation's trade with the U.S.
For instance, while most Southeast Asian nations succeeded in negotiating a reduction in the tariff rate to around 19-20 percent, it still remains unclear specifically what each agreed to. It is also unclear what exemptions might apply to their major exports to the U.S. and whether other geopolitical conditions may have been slipped into the trade discussions. As James Guild wrote recently for The Diplomat regarding the deals with Indonesia, Vietnam, and the Philippines, which were announced prior to last week's announcement, 'many important details are missing. In fact, many of the countries on the other side of these deals quickly made it known they viewed things a bit differently than President Trump.'
Yet, as the days go by, further details are emerging about what each nation put on the table during the rapid trade negotiations with the Trump team. Speaking to parliament yesterday, Malaysia's trade minister offered some details about how his nation managed to secure a reduction in its tariff, from 25 percent to 19 percent. In comments to parliament, Reuters reported that Tengku Zafrul Aziz said that Malaysian negotiators have agreed to spend up to $150 billion over the next five years to buy equipment from U.S. multinationals, in order to address the trade imbalance between the two countries.
This includes agreements for state energy firm Petroliam Nasional Berhad to buy liquefied natural gas worth $3.4 billion a year. As Reuters reported, Malaysia 'will also commit to $70 billion in cross-border investments in the United States over the next five years.' He confirmed that Malaysia had also agreed to remove its tariffs on more than 98 percent of U.S. goods. Last year, Malaysia had a trade surplus of around $24.9 billion with the U.S., according to the Office of the U.S. Trade Representative.
Tengku Zafrul said that the two countries were finalizing a joint statement covering the commitments that had been made, which also included tariff exemptions that Malaysia managed to secure on its pharmaceutical products and semiconductor exports to the U.S.
In his address to parliament, the minister warned that semiconductor chips may still be subject to additional tariffs under U.S. tariffs on the grounds of national security. 'Therefore, we need to continue to be prepared for any possible additional tariffs imposed on the semiconductor industry,' he said. He added that the country was seeking similar exemptions for important raw materials, including cocoa, rubber, and palm oil, but that these had not yet been finalized.
While Tengku Zafrul's comments bring some clarity to Malaysia's situation, it also highlights the challenge of negotiating trade agreements, which often take years of negotiations, on such a short time scale. Another area of considerable uncertainty that has been kicked down the road involves transshipped goods. Trump's tariff announcement included a blanket 40 percent tariff on any goods deemed to have originated in China. Like much else, it is still unclear how (and by whom) the provenance of goods will be established and verified.
Lurking behind the uncertainty about the specifics of the deal, there is the larger uncertainty about whether the tariffs will even be in place in a month, a year, or a decade's time. One writer in Free Malaysia Today argued today that Malaysian policymakers should not panic, assuming that the tariffs are 'an assertive, yet unstable, use of executive power' that might not last. 'The current tariff wave is not a permanent reordering of trade architecture,' the op-ed argued, 'it is a phase of legal and political experimentation.' As such, the article argued that Malaysia should avoid making knee-jerk concessions to Trump.
However long the tariffs are in effect, the short-term 'wins' that Trump has secured through the brute leveraging of U.S. economic power will likely be outweighed by the long-term drain of U.S. influence, as Southeast Asian governments seek out more predictable and 'like-minded' trade partners.
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