KUALA LUMPUR (July 25): As Southeast Asian neighbours struck deals with the US for lower tariffs, Malaysia’s refusal to compromise on some of its long-standing policies risks leaving it out of potentially more favourable terms.

Non-tariff barriers such as halal certification, foreign equity restrictions, and procurement policies favouring Bumiputera companies have all been stumbling blocks for Malaysia's negotiations on other free trade agreements, according to Tricia Yeoh, an associate professor of practice at the University of Nottingham Malaysia’s School of Politics and International Relations.

“These are some things we do not seem willing to budge on,” Yeoh said, “and may be the source of delays in coming to a trade deal with the US, unlike our neighbours in Indonesia and Vietnam.”

With less than a week to go before the deadline, Indonesia, Vietnam and the Philippines have all managed to secure lower tariffs with the US than previously threatened. Singapore, meanwhile, enjoys the lowest rate among Southeast Asian nations at 10%.

Malaysia has been threatened with a 25% import tariff on all of its goods entering the US. However, the Trump administration left room for negotiations before the US enforces the tariffs on Aug 1.

“What makes us different from Vietnam and Indonesia is less about the technical barriers and more about our policy alignment,” said Datuk Dr Pamela Yong, who chairs the Institute of Strategic Analysis and Policy Research, a public policy think tank under the Malaysian Chinese Association.

Vietnam adapted to digital and labour reforms, while Indonesia leveraged its minerals to lock in battery and electric vehicle deals, Yong noted. “Malaysia, by contrast, has not presented a coherent, cross-government offer or trade narrative,” she said.

Further, US President Donald Trump has warned of an extra 10% tariff on nations siding with BRICS — a geopolitical bloc comprising Brazil, Russia, India, China and South Africa that has now added six other members, including Indonesia. Malaysia, meanwhile, is a partner country of BRICS.

Malaysia’s growing cosiness with BRICS could push the rate as high as 35%, potentially wiping out RM20 billion in exports and shaving up to 1% off Malaysia’s gross domestic product, Yeoh warned.

Both Yeoh and Yong believe that the US could not afford to alienate Malaysia with tariffs, given the country’s strategic role in the global supply chain.

Malaysia hosts operations of major American companies, ranging from Intel to Spirit Aerosystems, and from JPMorgan to Coca-Cola. Malaysia supplies about 25% of the US’ chip requirements, and about 60% of the country’s electrical and electronics exports go to the US.

“The US, to some extent, is currently reliant on Malaysia for some of its semiconductors, although this is something that other countries in the region would be very willing to explore if this is a gap to be filled in the near future,” Yeoh noted.

Malaysia stands a chance to negotiate lower rates of between 15% and 20%, given its strategic role in supplying semiconductors, electronics, furniture, and medical gloves, said Pankaj Kumar, who heads Datametrics Research and Information Centre.

"I don't think the US has anything against Malaysia as the impacted companies are also US-based companies that have set up their operations here for years," he added.