US Tariffs on Malaysia: How to Negotiate a Deal?

Introduction

The media has been buzzing with concerns over the recently introduced Trumpian tariffs on US imports. Malaysia has responded by stating that no retaliatory tariffs will be imposed, but instead, will commence negotiations to seek a reduction. This article aims to explore the legal framework governing trade negotiations between Malaysia and the US, identifying key areas of concern and potential solutions.

Legal Framework

Trade negotiations should start with what is broadly provided for in our legal relationship with the US – this is usually governed by the rules or principles of the World Trade Organization (WTO) and/or special trade agreement between Malaysia and the US. Understanding the legal framework is crucial in identifying the scope of the negotiations.

Bound Rates and Tariffs

When a country joins the WTO, it agrees to maximum tariff rates on thousands of products – these are called bound rates. For example, if the US declared its bound rate on imported cars as 2.5%, it cannot suddenly raise it to 20% without violating WTO rules.

WTO Most-Favoured Nation Principle

The WTO’s most-favoured nation principle is another key rule of the organisation’s system. A tariff is only lawful if it is applied equally to all members. This rule might prove more problematic for the US since its tariff impositions are not necessarily equally applied.

Malaysia’s Obligations

Let’s try and understand Malaysia’s own obligations under WTO law. Based on data available in 2023, Malaysia charged an average import tax (tariff) of 5.6% on goods coming into the country. Malaysia too has made promises to the WTO about the maximum tariffs it will charge.

Bound Tariffs

Malaysia has made these promises (or “bound tariffs”) on about 84% of all products. On average, Malaysia’s maximum promised tariff is 21.1%. However, the maximum allowed tariff can vary a lot depending on the product.

Retaliatory Measures

Any retaliatory measures must not breach our own bound rates. Understanding Malaysia’s own WTO legal obligations helps us better appreciate the complaints of unfairness from the US corner.

The Case Against Malaysia

The US “case” for imposing the additional tariffs on Malaysia is published in the 2025 US National Trade Estimate Report. It is not for me to interrogate the accuracy of the report, but we should understand the complaints at least from their perspective against the legal backdrop.

Tariff Barriers

The US report states the obvious – Malaysia continues to assess a higher excise tax on imported distilled spirits than on locally produced spirits. Malaysia maintains very high excise taxes on motor vehicles, ranging from 60% to 105%.

Non-Tariff Barriers

The main complaints relate to non-tariff barriers and other protective measures. Let’s list them, again noting that this is to understand our trading partner’s concerns, not about testing their legitimacy:

* Import restrictions on motorised vehicles and those introduced in our 2024 budget on electric vehicles
* Import of halal meat and meat products is largely regulated by the Islamic development department’s (Jakim) rules
* Unclear regulations on new alcoholic beverages
* Ban on US poultry products due to avian influenza concerns
* Non-signing of the WTO Agreement on Government Procurement
* Protectionism in services, including banking, insurance, and maritime cabotage

Negotiating a Deal

Much of this shows that we need a multi-ministry negotiating team as the issues raised cut across so many different ministerial jurisdictions. Negotiations must be made from an informed position – and that must necessarily entail seeing the interests from our counter-party’s perspective. And, crucially, those interests should be seen not merely through economic lenses however important economic considerations are, but also the legal considerations.

Conclusion

In conclusion, understanding the legal framework governing trade negotiations between Malaysia and the US is crucial in identifying key areas of concern and potential solutions. By acknowledging the US complaints and addressing the issues raised, Malaysia can negotiate a more favorable trade deal.

FAQs

Q: What is the WTO’s most-favoured nation principle?
A: The WTO’s most-favoured nation principle is a key rule of the organisation’s system. A tariff is only lawful if it is applied equally to all members.

Q: What is Malaysia’s average import tax (tariff) on goods coming into the country?
A: Based on data available in 2023, Malaysia charged an average import tax (tariff) of 5.6% on goods coming into the country.

Q: What is the maximum allowed tariff on petroleum in Malaysia?
A: The maximum allowed tariff on petroleum in Malaysia is 5%.

Q: What is the main complaint of the US against Malaysia’s import restrictions on motorised vehicles?
A: The US complains about Malaysia’s non-transparent system of conferring rights to certain permit holders to import and distribute cars and motorcycles.