THERE were certain areas where the US has chosen to apply a zero-rate tariff. For Malaysia, the list of exemptions cover 1,711 products for Malaysia.
This won’t be not unique to Malaysia, and in the frameworks with Vietnam and Thailand, zero-rated items would be determined in respective agreements.
To be sure, the zero-rated items for Malaysia is still sizable, accounting for USD5.2 bil, or 12% of Malaysia’s total exports to the US.
By sector, zero-rated tariff sectors included palm oil, rubber, cocoa and selected pharmaceutical and aerospace components.
“The fact that we have some exemptions isn’t all surprising, given that back in September, we had learnt that Malaysia was requesting that there were zero-rated tarif items that included commodities,” said Kenanga.
There were also calls from the furniture manufacturing sector, among others, although today’s exemptions seem to have left out this sector.
In addition to these agreements centered on trade, Malaysia also had a further memorandum of understanding (MOU) which sought cooperation to diversify global critical minerals.
This is not surprising and accentuates the importance of Malaysia, in our view, from a strategic standpoint especially amid the spotlight on rare earths recently with China seeking to control approvals for exports.
In return for the reduced tariff to 19% (from 25%), commitments that have been made known since August this year mostly materialized in the joint statement.
These included the procurement of 30 aircrafts (plus the option for 30 additional planes), and an estimated USD150 bil value imposed on Malaysian MNCs to purchase semiconductors, aerospace components, and data centre equipment; purchase of coal and telecommunication products and services valued at USD204.1 mil, and estimated up to USD3.4 bil annual purchase of up to 5 tonnes per annum of LNG.
Specifically, there was also a breakdown given for the USD150 bil, with the largest component being semiconductor (USD103 bil or 69%).
This was followed by USD43.5 bil in data centres, including GPUs and servers, etc, and lastly for aerospace (USD3.5 bil).
Separately, there was also commitment for investment by Malaysia, including capital fund investments in the US of USD70 bil, and potential investments in manufacturing and manufacturing-related sectors, valued at USD66 mil.
Aside the above investments, there are other requirements on Malaysia as well. For instance, including USP fund contribution waiver for US cloud service providers, etc.
In addition, US would also have to be consulted in certain instances. One such example would be in the use of communication technology suppliers in the name of ensuring security, safeguards, and intellectual property of ICT infrastructure is not compromised.
“We look for more details on flexibility in meeting the requirements of the agreement and its ramifications,” said Kenanga.
For example, if there is leeway to a 5-year time frame (up to 2029) for the MNCs in Malaysia to procure the USD150 bil of equipment.
Separately, on a severe outcome, the agreement allows for a re-imposition of the higher tariff as set forth on 2 April 2025 (liberation day), if this reciprocal trade agreement is terminated by the United States.
The agreement points out to the fact that Malaysia shall facilitate and promote investment by the US in the areas of critical minerals, energy resources, power generation, telecommunications, and infrastructure services.
“Over time, we watch for investment and FDI in this space, which could benefit the likes of local banks, although we expect that the initial funding for businesses inbound to Malaysia may be funded out of US Exim Bank,” said Kenanga.
Local banks should also be able to leverage on the slightly improved export potential given the zero-rated tariff items (12% of exports to the US).
The US market is not a large one, consuming less than 3% of global palm oil, but the confirmation that there is no tariff would still be a mild positive.
However, there is no relative advantage to competition given news report indicates that Indonesia has also likely be able to enjoy zero tariffs, whereby in-principle, reportedly the US has already exempted Indonesia’s cocoa, palm oil and rubber exports from the 19% tariff.
Where it pertains to tech, US has hinted to: (i) maintaining Malaysia’s semiconductor carve-out from the blanket 19% reciprocal tariff; (ii) potentially listing certain Malaysian semiconductor products at 0% reciprocal tariff under an annex of the bilateral deal; and (iii) treating Malaysia as a “trusted” supply-chain partner.
If Malaysia secures such outcomes, this will result in a positive bias to the local players, especially the EMS ones as they could potentially be securing demand that could otherwise shift to Vietnam or other countries. The tech sector is one of Kenanga Research’s Overweight sectors,
All eyes will be on the outcome of the discussions between the US and China later this week in the attempt to get to a trade deal.
Scott Bessent, US Treasury Secretary claims that the framework for a potential trade deal that will be discussed have been agreed, and thus this could remove the threat of the 100% tariff on China imports into the US from 1 November.
China representatives, on the other hand, offered to say that a preliminary consensus has been achieved.—Oct 27, 2025
Main image: Reuters
