US and Malaysia Sign Trade Agreement

President Donald Trump and Malaysia’s Prime Minister Anwar Ibrahim signed a trade agreement and critical minerals pact Sunday, as the US leader looked to boost trade across Southeast Asia and respond to China’s tightening of access to rare earths.

Malaysia “is going to be modifying its tariffs and non-tariff barriers, and we intend to have a lot more trade,” US Trade Representative Jamieson Greer said at the signing in the Malaysian capital of Kuala Lumpur, adding that he expected agriculture, technology and services sectors to benefit from the agreement.

Greer said that the critical minerals deal made sure that trade and investment in the rare earths would make trade “as free as possible and resilient as possible.”

Anwar called the deals “a significant milestone” that would improve the relationship between the nations beyond trade.

Under the trade agreement, Malaysia will provide “significant preferential market access” for US chemicals, machinery and electrical equipment, metals and passenger vehicles, as well as agricultural exports.

The Southeast Asian nation will also address barriers impacting digital trade, services, and investment. It will also restrict the unauthorized export, re-export, and in-country transfer of US-origin or US-controlled items subject to the Export Administration Regulations.

Malaysia won’t ban or impose quotas on exports to the US of critical minerals or rare earth elements. It also committed to the expeditious development of its critical minerals and rare earths sectors in partnership with US companies, including granting extended operating licenses.

The Southeast Asian nation has signaled its ambitions in rare earths mining and processing to tap burgeoning demand for the minerals that are used in everything from electric vehicle batteries to defense manufacturing.

Under the trade deal, Malaysian companies will also purchase $150 billion worth of semiconductors, aerospace components and equipment, and data center equipment from US firms over the next five years. The deal also included the purchase of coal and telecommunications products and services valued at $204 million and, over the next 10 years, capital fund investments in the US of $70 billion.

“The trade deal with Malaysia will likely be used to encourage and pressure other deals in the region,” Dan Kritenbrink, a partner at the Asia Group and former US assistant secretary of state for East Asian and Pacific affairs, said before the signing of the agreements.

The circumstances of Sunday’s event with Anwar encapsulated the way in which Trump has made tariffs and trade a central tool in his second term.

Earlier in the day, he participated in a signing ceremony between Thailand and Cambodia, focused on de-escalating their recent border clash that left dozens dead. The brief conflict earlier this year halted after Trump threatened to sink trade deals with both countries.

Read More: Trump Hails Peace Agreement Between Cambodia and Thailand

Trump also announced a broad trade agreement with Cambodia and a critical minerals pact with Thailand, though the latter was mostly an aspirational pledge to work together. The Cambodia deal will see hundreds of types of goods exempted from the reciprocal tariff rate on exports imposed by Trump earlier this year.

Trump is on a three-nation Asia trip, his first to the region since he returned to the White House. He heads to Japan next and then South Korea, where a meeting with Chinese leader Xi Jinping is the trip’s expected grand finale.

US Treasury Secretary Scott Bessent was in Kuala Lumpur at the same time for talks with Chinese Vice Premier He Lifeng ahead of the leaders’ meeting.

The deal with Malaysia is set to ease concerns surrounding its exports to the world’s largest economy. Trump set a 19% tariff on the country in August, lower than the 25% he had threatened in July.

About 12% of Malaysia’s exports to the US worth $5.2 billion are exempted from the levy, Investment, Trade and Industry Minister Zafrul Aziz said late Sunday. They include exports of palm oil, cocoa and pharmaceuticals, he said.

Trade between the two countries totaled nearly $87 billion last year, according to the US Trade Representative. The bulk of that was trade in goods, with the US holding a $25 billion deficit, while it had a $1.7 billion surplus in services.

Malaysia had been seeking less onerous US trade conditions for months, and has vowed to crack down on the smuggling of advanced semiconductors through the country to China.

Zafrul said Saturday that Malaysia is negotiating to be spared from tariffs on semiconductor imports to the US, its third-largest market for chips.

Read More: Malaysia in Talks for 0% Chip Tariff, Minerals Deal With Trump

Malaysia’s economy expanded 5.2% in the third quarter, surpassing analysts’ expectations. Still, the government expects growth to slow to 4%-4.5% next year, from a projected expansion of as much as 4.8% in 2025.