RAM’s Trade Unpacked Series Part 3: US-Malaysia Agreement

Published on 07 Nov 2025.

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RAM Ratings has published Part 3 of its Trade Unpacked series, assessing the recent trade agreement between the US and Malaysia (‘ART’).

The core outcome of the ART reached in late July 2025 is the reduction of US reciprocal tariffs on Malaysian goods to 19% from 25%. After the conclusion of the ASEAN Summit in late October 2025, which Trump attended, a further broadening in scope of exemptions for key Malaysian exports was announced. In return for the tariff concessions, Malaysia agreed to facilitate the entry of US imports through tariff reductions and tariff rate quotas increases. Other commitments include higher purchase of US goods, investments in the US, and pledges to implement regulatory changes in areas such as labour, environment, digital trade, and recognition of US certifications.

We estimate that the 19% tariff, all else constant, would shave off about 0.3 ppts from GDP growth in both 2025 and 2026, although the ultimate impact would depend on the timing of transmission to the economy and base effects distortions. Further, under the additional exemptions scored by Malaysia, exports of goods such as electrical equipment (E&E) and cocoa will now be exempt from the 19% tariff, increasing the share of exempted goods to 28.8% of Malaysia’s overall exports to the US, up from 25.2% previously. These gains may help cushion further the overall impact on Malaysian exports to the US. Nevertheless, Malaysia remains exposed to US sectoral tariffs, particularly on semiconductors that are currently exempted from reciprocal tariffs; the share of exempted E&E not covered by ART accounts for 24.2% of exports to the US.

All issues considered, the ART may be Malaysia’s best option in terms of strategic positioning and to sustain economic growth under current global trade flows. However, the ‘win’ does come with significant commitments and concessions. Of note is Malaysia’s commitment to invest USD70 bil in the US over ten years, equating to about USD7 bil annually. This represents a significant jump from Malaysia’s average annual direct investment abroad gross outflow to the US (2022-2024 average: USD1.0 bil or RM4.7 bil). This large quantum raises questions about Malaysia’s capacity to fulfil such a lofty target.

Tariffs, in and of themselves, are a zero-sum game. Both countries are expected to be worse-off in one way or another. The additional 19% tariff, compared to the US’s earlier most favoured nation rate of about 3.3%, will now translate to a total tariff rate of 22.3% for Malaysian exports to the US, invariably making our goods more expensive to US consumers regardless of who bears the cost. 

All said, this agreement offers some reprieve in uncertainty and brings a degree of stability for businesses to plan ahead. Further, by fostering constructive trade relations with the US in these times of heightened tensions, Malaysia could maintain its neutral stance in trade with its key partners while balancing domestic goals. 

RAM’s report series Trade Unpacked is available for download at www.ram.com.my

 

Analytical contacts Nur Nadia Mazlan (603) 2708 8287 nadia@ram.com.my		Media contact Sakinah Arifin (603) 2708 8212 sakinah@ram.com.my
Woon Khai Jhek, CFA (603) 2708 8286 khaijhek@ram.com.my

 

About RAM Rating Services Berhad (RAM Ratings)

Established in 1990, RAM Ratings is a leading credit rating agency registered under the Securities Commission’s Guidelines on Credit Rating Agencies. In addition to the provision of credit ratings for corporate bonds and sukuk and their issuers, RAM Ratings also provides research and publications on Islamic finance, fixed income and macro-economic and industry analysis as well as data analytics relating to credit risk, counterparty assessments and other related domains. 

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