Malaysia to spend $150B on US tech, LNG to avert 19% tariff in trade talks

Days after Malaysia reportedly reached a trade agreement with the United States that reduces the proposed 25% tariff on its exports to 19%, it revealed it is committing to over $150 billion in purchases and investments. 

It is believed that the sum is sufficient to address the trade imbalance with the U.S., with a goods trade deficit of $24.8 billion between both countries in 2024.

Malaysia commits to the United States for trade

As part of the deal, Malaysia is expected to spend up to $150 billion in the next five years to purchase equipment from American multinationals for its semiconductor, aerospace and data center sectors.

The deal will see state energy firm Petroliam Nasional Berhad buy liquefied natural gas worth $3.4 billion a year, while the country’s government will commit to $70 billion in cross-border investments in the United States over the next five years to address the trade imbalance, minister Tengku Zafrul Aziz said.

Aside from the promised investments, Malaysia also agreed to reduce or abolish duties on 98.4% of U.S. imports, ease some non-tariff barriers, and remove the requirement for U.S. social media platforms and cloud service providers to contribute part of their Malaysian revenues to a state fund.

According to Tengku Zafrul, both countries are in the process of finalizing a joint statement covering the commitments made, following weeks of negotiations over the tariffs.

The Malaysian government had been hopeful for lower tariff rates but they are satisfied with what they got.

“The ministry believes that these negotiations have succeeded in achieving a result that is reasonable with the offers made by Malaysia,” Tengku Zafrul said.

Last week, Tengku Zafrul revealed Malaysia had secured tariff exemptions on the pharmaceutical products and semiconductors it exports to the United States, with hopes for further cut-outs for commodities such as cocoa, rubber and palm oil.

However, on Monday, he advised caution and urged preparation as semiconductor chips may still be subject to additional tariffs under U.S. laws based on national security reasons.

Malaysia secured lesser tariff rates

Last week, the United States announced plans to impose a 19% tariff on Malaysia from August 8, lower than the 25% levy threatened in July.

That announcement came after negotiations between Prime Minister Anwar Ibrahim and President Trump on July 31. The deal, which was reportedly finalized over a phone call, is said to have involved multiple components beyond traditional trade discussions. However, those components have not been revealed.

According to official sources quoted by The Straits Times, “the call was made earlier in the morning of July 31, after it was proposed by the Americans just a few hours back,” which proves it was last-minute.

Commentators believe a potential factor that influenced the negotiations may have been about U.S. concerns about China’s market dominance. Sources suggest Malaysia is capable of replacing China as the supplier of rare earth elements to the U.S., given the country’s massive deposits of over 16 million tonnes.

That would effectively address America’s dependency concerns in a world where China continues to dominate critical mineral production. As it stands, rare earth ore mined in Malaysia is transported to China as the country lacks domestic processing technology.