By P. Gunasegaram
Malaysia’s shameless succumbing to US president Donald Trump’s unwarranted pressure over tariffs involves more than lopsided trade conditions – there is the servile surrender of sovereign rights and other restrictions too.
Although called a reciprocal arrangement it is badly one-sided – a long list of Malaysian “shoulds” in return for what appears to be a unilateral imposition of the US of a tariff of 19 per cent without any relent.
In addition, Malaysia makes a slew of concessions, including an iron clad agreement to purchase hundreds of billions of ringgit of US goods through its multinational corporations.
The only obligation that the US seems to have is to reduce the duty on applicable goods to 19 per cent from 24 per cent in April, both of which were unilaterally imposed by the US, eschewing the aegis of any recognised international trade regulation body.
RM1 trillion concession to the US
As I explained in a previous article titled A ginormous RM1 trillion bill for a small tariff cut, this agreement that has come to pass has given away over RM1 trillion in various concessions for just a 5 percentage point gain in tariffs.
If we assume 20 per cent of exports or some RM23.8 billion are subject to tariffs as there are many exemptions for goods such as semiconductors, that 5 per cent difference amounts to just RM1.19 billion a year. The RM1 trillion worth of concessions is 840 times that! Ridiculous.
It has totally ignored the principle that trade in goods has to be taken into account with the trade in services, where the US enjoys a huge surplus (see table). If this were done, the deficit is substantially reduced to RM16.7 billion from RM56.2 billion for 2023.
Malaysia’s Trade in Goods and Services with the US (RM Billion) – 2023
| Goods | Services | Total | |
| Exports | 119.5 | 36.6 | 156.1 |
| Imports | 63.3 | 76.1 | 139.4 |
| Surplus | 56.2 | (39.5) | 16.7 |
Source: DOSM, Finance Ministry
It shows what can go wrong when agreements are done in haste and without due consultation among other nations and affected parties, putting at the top of priorities, political appearances, a characteristic of this Madani government.
Here’s a list of some of the concessions which was agreed upon as far back as August and now finalised:
- US$150 billion in purchases by multinational companies in Malaysia’s semiconductor, aerospace, and data centre sectors over five years
- US$70 billion in Malaysian investments in the US over 10 years
- US$19 billion Boeing aircraft purchase by Malaysia Aviation Group (MAG) for fleet renewal
- US$3.4 billion per year in liquefied natural gas purchases (LNG) by Petronas
- US$42.6 million per year in coal purchases by Tenaga Nasional Bhd
- US$119 million in telecommunications product purchases by Telekom Malaysia
Servile surrender
That’s over US$240 billion or about RM1 trillion. It looks like our negotiators are terribly innumerate, giving away so much for so little. Add to this the servile surrender of sovereign rights where many things need to be referred to the US.
Here’s a sampling:
Article 3.1: Digital Services Tax
Malaysia shall not impose digital services taxes, or similar taxes, that discriminate against U.S. companies in law or in fact.
Article 3.3: Digital Trade Agreements
Malaysia shall consult with the United States before entering into a new digital trade agreement with another country that jeopardizes essential U.S. interests.
Article 5.2: Export Controls, Sanctions, Investment Security, and Related Matters
1. Malaysia shall, through its domestic regulatory process, cooperate with the United States to regulate the trade in national security-sensitive technologies and goods through existing multilateral export control regimes, align with all unilateral export controls in force by the United States, and ensure that its companies do not backfill or undermine these controls.
Article 5.2: Export Controls, Sanctions, Investment Security, and Related Matters
3. Malaysia shall, through its domestic regulatory process, cooperate with the United States to regulate the trade in national security-sensitive technologies and goods through existing multilateral export control regimes, align with all unilateral export controls in force by the United States, and ensure that its companies do not backfill or undermine these controls.
A tiny consolation
A tiny consolation is that either party may terminate the agreement under Article 7.5: Termination to take effect 180 days after the date of the notification. But commitments made contractually will likely not fall under these.
Meantime Schedule 1 gives the US more benefits. Article 1.2 says Sales and Services Tax (SST) Malaysia shall exclude U.S. exports of agricultural and seafood products from Malaysia’s consumption tax.
It also provides for adopting US certification standards for a range of imports, including food imports. That’s yet another surrender of sovereign rights.
There are many more contentious issues. I have chosen to highlight the main ones which show that the Malaysian side has been totally remiss in getting any concessions from the US, in its overeagerness to appease Trump and make the agreement more appetising than it actually is.
A political pronouncement
Predictably Putrajaya has not passed the opportunity to make a political statement. “Recognising the growing strategic and multifaceted cooperation between Malaysia and the United States, the Prime Minister and President Trump announced the elevation of the bilateral relations to a Comprehensive Strategic Partnership (CSP). The elevation of partnership marks a historic advancement in the relations between the two countries, built upon a foundation of diplomatic engagement forged since 1957 and formalised as a Comprehensive Partnership in 2014,” the Ministry of Foreign Affairs said.
Does the CSP mean anything at all given the concessions we gave the US in negotiations far exceed anything we got in return? The US not only imposed tariffs it extracted RM1 trillion in concessions on top of that.
It may look like Trump is winning, but he is not in the longer term. Broadly, if everyone ends up subject to a similar tariff for exports to the US, there is no major change in competitive advantage. But the US consumer pays in terms of higher prices of goods.
If exporters to the US play smart, they will simply pass the cost of tariffs in full to the consumer and keep their margins. It’s unlikely the US can produce alternatives given their high cost of production, even if they could in a short time.
It means higher prices of all imported goods to the US except those imported semi-finished goods used in US industry for final production which are specifically exempted with zero duties.
Poor moral fibre
As one economist who would not want to be quoted said: “My simple synopsis is that this tariff policy represents the largest ever wealth transfer from poor Americans to the rich. Time will tell if the poor Americans realise this and will change their vote accordingly.”
The tariffs are a way to raise revenue for the US government without taxing the rich who Trump is cultivating to stay in power and on whom he relies for his funding and his public relations effort – the dissemination of not only platitudes but plain lies designed to deceive across all media and especially social media.
The sad, unfortunate thing is we have wittingly and willingly allowed ourselves, along with many others, to be used in this battle for the public mind in the US and the world by Trump – that’s an indication of rather poor moral fibre.
Tell me, did we really need Trump to get a ceasefire going for the border skirmish between Cambodia and Thailand? And has he fully stopped genocide in Gaza and the West Bank?
But yes, some of us gave him credit and credence for his false claim that he is ending wars worldwide so that they will look better at home.
Pathetic!
P Gunasegaram says appearances are deceiving most of the time.
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