Malaysia’s new Agreement on Reciprocal Trade (ART) with the United States has drawn everything from optimism to alarm. But as with most trade deals, the truth sits somewhere in the middle, and it should be noted that trade deals may not always unfold exactly as written.

So what does the ART really contain — and how might it shape Malaysia once political and economic realities come into play?

Tariff man

In April 2025, the US imposed steep “Liberation Day” tariffs. Unlike Donald Trump’s first trade war that mainly targeted China, these were broad, sweeping, and slapped on countries regardless of their relationship with the US. Malaysia was hit with a tariff rate of 24%, part of a global recalibration meant to punish perceived imbalances in US trade relationships.

These tariffs reshaped global trade flows overnight, creating uncertainty even for long-standing US allies. Investment also took a hit, with businesses pausing or rerouting capital expenditure and expansion while waiting to see how things play out.

Negotiating a reduction matters. The US is Malaysia’s second-largest trading partner and biggest export destination, according to the international trade and investment ministry. Total trade between the two countries reached RM324.9 billion in 2024.

Under the new ART agreement signed in October 2025:

• Malaysia’s average tariff rate drops from 24% to 19%.
• Approximately 12% of Malaysian exports — over 1,700 tariff lines — will have a 0% or below 19% tariff rate, roughly equivalent to RM22 billion.

While not negotiated under ART, key Malaysian exports such as semiconductors remain exempted from tariffs for now and will be given special consideration under the US’s Section 232 sectoral tariff talks.

In short: the ART is not a conventional trade deal for greater liberalisation, but to stop the bleeding and stabilise the tariff shock.

Even a 19% tariff, locked in via an agreement, is far more predictable than a theoretically lower tariff that might spike or be applied arbitrarily. It instills a floor under the chaos, giving firms and investors the confidence that the rules won’t keep changing overnight. This facilitates planning for investment, supply chains, wages and so on.

Cost of the deal

But what was the cost of this triage? Every deal requires give and take, and critics have raised the alarm over certain clauses.

A good chunk of the ART repeats what Malaysia already commits to under the World Trade Organization (WTO) regime and its existing free trade agreements (FTAs). The language on import quotas, non-discriminatory licensing and technical standards, science-based sanitary and phytosanitary rules, and geographical indications mirrors long-standing global rules.

Malaysia could already face WTO action for breaching these principles, so restating them in a bilateral deal does not meaningfully change obligations and keeps Malaysia aligned with Most-Favoured-Nation principles.

But the agreement is not truly “reciprocal”: Malaysia reduces or phases down duties on certain US goods, while the US retains its 19% tariffs.

Security-related clauses have attracted more scrutiny. Malaysia commits to cooperating with the US on goods and services deemed sensitive to national or economic security.

No third country is named in the ART document, but the US has been on the offensive when it comes to supply chain security, transshipment risks and dual-use technology competitiveness from China. Critics argue that this could pull Malaysia into strategic competition, undermining the country’s longstanding foreign policy of neutrality.

Bigger picture

So why sign?

No one is pretending the ART is a spectacular deal, but some perspective is needed.

First, Malaysia is a mid-sized, open economy that relies heavily on trade and investment. Prolonged uncertainty with one of its top export markets is simply not an option.

Even far larger players with more leverage than Malaysia— the EU, UK, Japan and South Korea — accepted uneven tariff arrangements this year not because the terms were attractive, but because predictability generates more for the economy than perfect reciprocity.

The security-related clauses meanwhile depend on “shared national and economic security” risks— meaning Malaysia must still agree to take action based on its own national interests. It’s not an automatic kow-tow to Washington’s every whim and fancy.

Second, these countries also recognised that, like it or not, the US remains a crucial security and economic partner. Malaysia’s decision sits within the same logic, reinforced by the fact that the ART was signed alongside a Comprehensive Strategic Partnership to stabilise and elevate longstanding ties.

Third, as with the UK and other countries inking deals with Washington, the ART is, to echo a quote by a UK official, “not a finished, classic ‘bells and whistles’ trade agreement” but “a tactical response to President Trump’s tariffs”. The deal is not simply to gain favour, but to buy time.

It functions more as a stopgap — a way to keep channels warm, buy goodwill where necessary, and secure a calmer operating environment while Malaysia works on its long-term neutral strategy: diversification.

That strategy is already underway. Malaysia is deepening regional links within Asean, introducing new intra-regional platforms such as the Asean-GCC-China Summit, and continuing trade talks with partners like the EU for new FTAs.

These moves reflect a wider pattern: even America’s closest allies are voicing concerns about Washington’s unpredictability. But shifting markets and supply chains cannot happen overnight. The ART provides space to do that work without juggling an escalating tariff dispute at the same time.

Fourth and most importantly, implementing any trade deal takes time— and political and economic realities keep shifting as that happens.

The ART is not a FTA; FTAs require congressional approval and are legally binding. Instead, the ART is an executive agreement made through presidential authority— a category of deal that sitting US presidents can revise.

Implementing any trade deal can often stretch across a year or more, thanks to legal and administrative amendments such as readying a national export control regime.

The ART was officially signed in October 2025. With the US midterms coming up in November 2026, blowback against the Trump administration and Republicans at the polls may reshape and soften Washington’s approach to tariffs and trade.

As it is not legally binding, there may be no enforcement beyond threats of more tariffs and other economic pressures either. Separately, the ART has a built-in clause for Malaysia to unilaterally terminate the deal if needed.

Bottom-line: the deal looks firmer on paper than it may be in reality. Granular details and conditions in the agreement are also still being worked out, leaving the full impact unclear.

Hit pause

The ART is imperfect and asymmetrical, but far less dramatic than the debate around it suggests. Its biggest contribution is clarity. By placing a ceiling on tariffs and returning predictability to a major trade relationship, it gives Malaysia the stability it needs while focusing on diversifying its economic partnerships.

Meanwhile, the biggest risk with the ART is that it could leave Malaysia in a tight spot with other major partners if its terms clash with existing trade commitments.

The deal may evolve, be softened or even rewritten depending on US politics. But for now, it functions as a pause button — a way to keep one channel steady while Malaysia quietly strengthens all the others.

Amalina Anuar is Senior Director at FMT Business, FMT Media’s strategy, intelligence and research arm. She is also Visiting Research Fellow at ISEAS Yusof-Ishak Institute.

The views expressed are the writer’s own, and do not necessarily reflect those of FMT.