Malaysia’s ASEAN leadership, and the ART of geoeconomic diplomacy to build resilience

KUALA LUMPUR (Dec 10): Malaysia is moving confidently towards a new era of economic resilience, regional influence and global competitiveness, an era shaped by decisive policies and strategic partnerships aimed at securing the nation’s long-term prosperity.

As global uncertainty deepens and geopolitical tensions reshape trade patterns, Malaysia has chosen to respond not with hesitation, but with clarity and purpose.

Two major developments stand out: Malaysia’s leadership in delivering concrete outcomes during its ASEAN 2025 Chairmanship, as well as the signing of the Malaysia–U.S. Agreement on Reciprocal Trade (ART). Both underscore Malaysia’s strategy in geoeconomic diplomacy while advancing regional integration, digitalisation and sustainable growth.

Malaysia’s ASEAN chairmanship: A year of concrete deliverables

Through the Economic Pillar, Malaysia’s strong leadership during its ASEAN chairmanship was evident through the advancement of an agenda centered on deeper regional integration, sustainability and digital transformation.

Out of 18 Priority Economic Deliverables (PEDs) for 2025, 15 have already been completed, with the rest progressing well.

One of the most transformative PEDs is the advancement of the ASEAN Digital Economy Framework Agreement (DEFA), which lays the groundwork for a USD2 trillion regional digital economy by 2030.

DEFA aims to harmonise the digital landscape across ASEAN, giving Malaysian MSMEs and technology-driven businesses a seamless pathway to scale regionally.

Malaysia also championed ASEAN’s sustainability agenda through the establishment of the ASEAN MSME Green Transition Centre and the Inclusive Business Forum.

These initiatives aim to help 10,000 MSMEs transition toward greener operations, ensuring that sustainability is not a burden but an enabler of long-term competitiveness.

ASEAN’s shared commitment to increasing renewable energy capacity to 45 per cent by 2030 and reducing energy intensity by 40 per cent also aligns closely with Malaysia’s domestic push for a greener industrial ecosystem.

Malaysia’s leadership extended to strengthening regional trade facilitation. Key upgrades to the ASEAN Trade in Goods Agreement (ATIGA) and the ASEAN–China Free Trade Area (ACFTA 3.0) are streamlining customs procedures, harmonising standards and improving logistics efficiency.

At the same time, the signing of the Malaysia–Korea Free Trade Agreement (MKFTA) at the sidelines of the 47th ASEAN Summit reinforces Malaysia’s strategy of diversifying trade partnerships while deepening its role as a high-growth regional hub.

A significant highlight during Malaysia’s chairmanship was the historic accession of Timor-Leste as ASEAN’s eleventh member.

The expansion reflects ASEAN’s enduring commitment to inclusivity, regional cooperation and shared prosperity, values Malaysia has long championed.

ART: A strategic response to global protectionism

Aside from deftly leading ASEAN in navigating through global geopolitics, Malaysia also proactively worked towards signing the ART agreement at the sidelines of the 47th ASEAN Summit. Given the uncertainties of the six months following the imposition of unilateral reciprocal tariffs by the United States (U.S.), the ART stands as one of Malaysia’s most defining bilateral agreements in recent memory, providing clarity to investors and businesses.

Concluded at a turning point marked by rising global protectionism, ART safeguards Malaysia’s biggest export market, the United States, where exports reached RM198.65 billion in 2024.

With significant stakes involved, the Malaysian government acted decisively and strategically to safeguard industries, protect jobs, and fortify supply chains against emerging risks.

Former Minister of Investment, Trade and Industry (MITI), Tengku Datuk Seri Zafrul Abdul Aziz, affirmed that the ART is a balanced and strategic move to safeguard Malaysia’s economic interests and ensure continued access to its largest export market amid global geo-economic pressures.

Delivering his ministerial statement in Parliament on 29 October 2025, the former minister, Zafrul emphasised clearly that “the agreement was not sought by Malaysia, but a necessary response to unilateral tariffs imposed by the U.S. earlier this year.”

Ong Kian Ming, former Deputy Minister of the Ministry of Investment, Trade and Industry (MITI), said the reciprocal trade agreement signed between Malaysia and the United States should not be perceived as an immediate threat but rather as an opportunity that opens new avenues for growth.

He added that under the agreement, Malaysia should pursue funding and investment from the US in sectors such as critical minerals and power generation.

“Malaysia should also identify opportunities with companies from other countries that offer comparable technologies and value propositions,” he said in a statement.

Meanwhile, American Malaysian Chamber of Commerce (AmCham) Chief Executive Officer Datuk Siobhan Das said Malaysia stands to benefit significantly from the signing of the ART, which positions the country to attract more high-value investments, broaden export opportunities and unlock new growth prospects across key industries.

AmCham believes that the agreement will improve market access for Malaysian exporters, streamline trade processes and facilitate technology transfer in strategic sectors such as semiconductors, renewable energy, digital trade and advanced manufacturing.

“The pact represents a transformational opportunity that solidifies Malaysia’s status as a preferred trade and investment destination for US companies in the Indo-Pacific. This agreement enhances Malaysia’s competitiveness and strengthens its role in global supply chains while fostering a more transparent and predictable business environment,” he said.

These assertions also reflect Malaysia’s commitment to defending its industries, safeguarding 1.1 million jobs, while safeguarding future growth and maintaining a steady diplomatic posture.

Through thorough negotiations, Malaysia secured a reduction of the retaliatory tariff rate from 25 per cent to 19 per cent, the lowest achieved among ASEAN nations with trade surpluses against the United States.

In addition, Malaysia secured tariff exemptions for 1,711 export products covering sectors such as palm oil, rubber-based goods, cocoa, aerospace components and pharmaceuticals.

Representing about 12 per cent of Malaysia’s exported goods to the U.S. in 2024, these tariff lines, collectively valued at RM22 billion in 2024, could grow significantly given their exemption from the 19% reciprocal tariff. For Malaysian companies particularly SMEs, this deal ensures potential growth and uninterrupted access to a market that is central to their growth and competitiveness.

Without ART, Malaysia risked facing tariffs of up to 100% on some key exports. It also threatens RM56.2 billion in semiconductor exports alone. Instead of exposing this critical sector to tariff risk, the agreement preserves market access, stabilises supply chains, while protecting millions of Malaysian jobs, and SMEs in supply chains serving the US market. In short, ART establishes stability and predictability.

For industries such as electrical and electronics (E&E), aerospace, rubber, cocoa and pharmaceuticals, this stability translates directly into sustained investor confidence, reinvestment and long-term industrial upgrading.

Crucially, negotiators protected Malaysia’s policy space. There were no concessions on Bumiputera empowerment, halal certification, government procurement, or national regulatory sovereignty. Article 5.1 preserves Malaysia’s diplomatic neutrality and foreign policy independence. Malaysia retains full authority over its laws, policies, and decisions. Any issues arising under the agreement will be resolved through consultation, dialogue and cost-benefit analysis.

The agreement prevents sudden unilateral actions by either party, providing Malaysian businesses with the certainty and predictability they need to plan, grow and innovate.

Beyond protecting current exports, ART opens doors to new opportunities by positioning Malaysia as a trusted partner within the U.S. global supply chain. As global industries search for resilient, neutral, technologically capable bases for expansion, Malaysia emerges as a compelling choice.

SMEs are also able to benefit from the ART through access to technology transfer, higher-value supply chains and upskilling opportunities, all being key elements in Malaysia’s transition to a high-income, innovation-driven economy.

Malaysia secured tariff exemptions for 1,711 export products covering sectors such as palm oil, rubber-based goods, cocoa, aerospace components and pharmaceuticals. Representing about 12% of Malaysia’s exported goods to the U.S. in 2024, these tariff lines, collectively valued at RM22 billion in 2024, could grow significantly given their exemption from the 19% reciprocal tariff. For Malaysian companies particularly SMEs, this deal ensures potential growth and uninterrupted access to a market that is central to their growth and competitiveness.

Positioning Malaysia in a shifting global landscape

Together, the ART and Malaysia’s proactive ASEAN initiatives reflect the nation’s evolution into a forward-looking, globally connected economy.

These successes reflect Malaysia’s ability not merely to adapt to global changes but to actively shape them supported by the ambitions of the New Industrial Master Plan 2030 (NIMP 2030) which prioritises digitalisation, green technology, supply-chain resilience and advanced manufacturing.

As Malaysia continues to broaden its international presence across regions including Africa, the Middle East, Latin America, and the BRICS economies (Brazil, Russia, India, China, and South Africa), the combination of diversified markets and secure access to the United States positions the country strongly and resiliently amid global uncertainty.

These strategic initiatives help strengthen Malaysia’s position as a regional gateway for exports, investment and innovation, anchoring long-term prosperity and stability for the nation.