US-ASEAN TRADE BREAKTHROUGH IN KUALA LUMPUR HERALDS STRONG US-CHINA RELATIONSHIP AT APEC

By Phar Kim Beng and Luthfy Hamzah

KUALA LUMPUR, Oct 26 (Bernama) -- In what is rapidly emerging as a defining moment for the Indo-Pacific economic order, the bilateral breakthrough between Malaysia and the United States is not only a trade deal; it is a strategic template.

As Malaysia and the US set the high bar for a future Association of Southeast Asian Nations-US Free Trade Agreement (FTA) and recalibrate the Sino-US relationship, the region stands on the cusp of a new commercial and geopolitical architecture.

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Elevating Economic Diplomacy

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The US and Malaysia signed the Agreement on Reciprocal Trade that stretches well beyond conventional economics on the sidelines of the 47th ASEAN Summit in Kuala Lumpur.

Under the pact, the US committed to maintaining a unified tariff floor of 19 per cent on originating goods from Malaysia, while Malaysia pledged sweeping reforms: streamlining halal certification requirements, liberalising data flows, accepting US motor vehicle and safety standards, and refraining from imposing export quotas on critical minerals and rare earths destined for US companies. 

The inclusion of critical minerals and rare-earth elements in the trade agreement elevates this into the realm of strategic supply chains and industrial policy, not just tariff engineering. Malaysia has committed to “granting extended operating licences … in partnership with US firms” for its rare-earth sector. 

This deal thus marks a pivotal shift in which Malaysia is no longer simply a manufacturing base in the value chain but is positioning itself as a nexus of resource-to-innovation linkages between Southeast Asia and the US.

Setting the Template for an ASEAN-US FTA

What makes this Malaysia-US arrangement so consequential is its broader relevance, as it serves as a blueprint for a future ASEAN-US FTA. By demonstrating what such an FTA could look like, inclusive of trade in goods, services, digital flows, minerals, and industrial cooperation, this bilateral deal raises the benchmark for regional negotiations.

If ASEAN collectively pursues a similar agreement with the US, this Malaysian precedent establishes key pillars:

Market access reciprocity: where preferential US exports gain access, and ASEAN supply chains integrate deeper.

Strategic value-chain integration: critical minerals, digital infrastructure, and advanced manufacturing become part of trade deals, not just tariffs.

Rules beyond tariffs: data flows, non-tariff barriers, product standards, and environmental and labour commitments. The Malaysia-US deal, for example, commits Malaysia to high-level labour and environmental protections. 

Alignment of allied interests: the deal tacitly signals that ASEAN can partner with the US as an independent actor, offering ASEAN states an example of agency.

For ASEAN, this means that an ASEAN-US FTA is no longer speculative; it is potentially actionable. Malaysia’s success may galvanise other member states to push beyond incremental economic deals toward a full-spectrum regional FTA with the US.

Implications for the Sino-US Interplay

This Malaysia-US trajectory carries heavier geopolitical freight. The inclusion of rare earths and critical minerals clearly targets the supply-chain leverage that China has long held in this sector.

China has sought to dominate the markets for rare-earth processing and exports for strategic advantage. The Malaysia-US deal directly offsets that influence, signalling that Southeast Asian supply chains can be decoupled from Beijing’s orbit. 

Simultaneously, Malaysia retains the flexibility to engage with China, given its resource base and prior ties with China. That balancing act is emblematic of Southeast Asia’s broader Sino-US conundrum: deepen ties with Washington without alienating Beijing.

Malaysia’s deal, therefore, offers a path of embracing deeper US economic cooperation while preserving strategic autonomy and regional balance.

For the US, the Malaysia agreement signals a shift in which trade and industrial diplomacy are now tools of geopolitical strategy. For China, it is a signal that its resource-leveraged dominance is being contested, not only by Washington but also by regional middle powers like Malaysia.

For ASEAN, it suggests that the bloc can be more than an arena for Sino-US rivalry; it can be a convener of value chains and peace chains on its own terms.

Opportunities and Risks Ahead

The implications are expansive, but so too are the responsibilities:

Opportunity 1: Malaysia (and, by extension, ASEAN) moves up the value chain — from assembly to advanced manufacturing to resource upgrading and innovation. The rare-earth segment allows Malaysia to become a linchpin of 21st-century industry.

Opportunity 2: ASEAN-US economic ties could be anchored in a modern FTA that integrates digital trade, climate-friendly supply chains and sustainable development. Malaysia’s precedent raises the ambition.

Opportunity 3: ASEAN’s agency is enhanced. Instead of merely reacting to US or Chinese initiatives, ASEAN states can craft partnerships on their terms, as Malaysia has done.

But there are risks:

Risk 1: Domestic backlash. Deep liberalisation (digital, foreign investment, and environmental regimes) may spark public pushback in Malaysia and other ASEAN states wary of sovereignty or harm to local industry.

Risk 2: Environmental and social governance. The rapid push into critical minerals demands strong oversight. Malaysia must avoid the dynamics of the resource curse, ecological degradation, and social dislocation.

Risk 3: ASEAN fragmentation. Not all member states will be ready for a US-anchored FTA. If Malaysia moves too far ahead, there is a danger of creating tiered integration within ASEAN or encouraging exclusive blocs.

Risk 4: China’s reaction. Beijing will not stand idle as ASEAN supply chains shift closer to the US.  Malaysia and ASEAN must manage that transition carefully to avoid Sino pushback or economic coercion.

Malaysia’s Leadership Moment and ASEAN’s Strategic Leap

For Malaysia, the deal cements its role as a convener state in Southeast Asia. Under Prime Minister Anwar Ibrahim, Malaysia has shown that it can simultaneously broker peace (with the Cambodia–Thailand accord) and secure industrial partnerships (with the US). Malaysia is no longer just a regional participant; it is a regional norm-setter.

For ASEAN, the Malaysia-US partnership offers a strategic template. The region must ask: Can we as a bloc replicate this blueprint with the US? 

Can we move from being passive recipients of major-power trade flows to active architects of value chains, supply networks, and security-economy linkages? The answer appears to be yes, and Malaysia has provided a working model.

Final Word

Malaysia and the US have done more than sign a trade agreement; they have established a benchmark for the future of regional economic architecture. 

The Malaysia-US trade and minerals pact becomes the anchor point for a larger ASEAN-US FTA. It contextualises the Sino-US rivalry in Southeast Asia not as a choice of sides, but as a platform for regional leverage.

For ASEAN member states, the challenge now is to rise to the bar. To convert this precedent into a collective endeavour. To ensure that economic policy, trade strategy and geopolitical posture are aligned across the bloc.

In Malaysia’s handiwork, we see a new ASEAN moment, one in which peace, trade, and strategic autonomy converge. 

One where Southeast Asia does not merely sit between major powers but repositions itself at the intersection of value chains and diplomacy. The high bar is now set. The question is, will ASEAN as a whole leap over it?

-- BERNAMA

*Phar Kim Beng, PhD, is Professor of ASEAN Studies, International Islamic University Malaysia, and director at the Institute of International and ASEAN Studies (IINTAS), and Luthfy Hamzah is a Research Fellow at IINTAS. ​​​​​​The views expressed in this article are those of the author and do not reflect the official policy or position of BERNAMA.