Malaysia has committed to a massive RM1.02 trillion investment and purchasing deal with the United States. The goal is to secure a better trade position by lowering US import tariffs on Malaysian goods. Is this a brilliant strategic play for our economy, or a trillion-ringgit gamble we can’t afford?

The Deal Explained: What Are We Buying?

The Ministry of Investment, Trade and Industry (MITI) announced that the RM1.02 trillion (approximately US$240 billion) commitment helped reduce the US tariff rate on Malaysian goods from 25% down to 19%. This spending is spread over different timeframes and includes commitments from major corporations including:

Over the next five years, multinational companies are expected to spend RM634 billion (approximately US$150 billion) in Malaysia, driven largely by investments in the semiconductor, aerospace, and data centre sectors. 

At the same time, Malaysian investments into the United States are projected to reach RM296 billion (approximately US$70 billion) over the next decade. Malaysia Aviation Group (MAG) is also committing RM80 billion (approximately US$19 billion) to purchase Boeing aircraft as part of its fleet renewal strategy. 

Petronas is expected to spend RM14 billion (approximately US$3.4 billion) annually on liquefied natural gas imports, while Tenaga Nasional Bhd will allocate RM180 million (approximately US$42.6 million) annually for coal purchases.

Was This A Necessary Price to Pay?

Some economists believe this deal was the only option. Without it, Malaysia could have been facing a 25% tariff, making us an outlier among ASEAN nations and hurting our competitiveness. Investors would question why they should set up shop here if our trade terms are the worst in the region.

The 19% rate isn’t ideal but does put Malaysia on a level playing field with our neighbours. The focus was on securing the best rate possible.

Not all of this investment comes directly from the government’s budget. Many of the purchases will be made by private companies. A lower tariff rate means cost savings for both local and international businesses in Malaysia that depend on US components for manufacturing, which ultimately benefits the broader economy.

Is Malaysia Paying Too Much?

Despite the strategic reasons, the price tag is staggering. For years, Malaysia has enjoyed a healthy goods trade surplus with the US, meaning we sold more to them than we bought. Analyst Bernard Aw of Coface noted that these new purchase agreements, worth at least US$33 billion (approximately RM139 billion) a year, could be significant enough to shift that surplus into a deficit. We might soon be buying more from the US than we sell to them.

Meeting the investment targets also looks challenging. The deal requires Malaysia to invest about US$7 billion (approximately RM29.5 billion)  in the US annually for the next decade. To put that in perspective, our total direct investment abroad in 2024 was about US$13.9 billion (approximately RM58.76 billion). This deal would mean directing half of our entire foreign investment budget to the United States.

Economist Geoffrey Williams suggested the deal could be “smoke and mirrors.” He pointed out that the Boeing aircraft ordered by MAG could simply be a normal fleet replacement, rather than additional investment. With global orders for Boeing planes rising, delivery could be delayed until long after the current US administration’s term ends, at which point the orders could potentially be cancelled. This might explain why the tariff reduction we received was relatively small.

What This Means for the Malaysian Economy and Your Investments

The immediate reaction on Bursa Malaysia was lukewarm, with the FTSE Bursa Malaysia KLCI Index (FBM KLCI) dipping slightly after the announcement. Investors remain cautious as they weigh short-term clarity of a lower tariff against the long-term costs and risks.

However, the deal solidifies Malaysia’s role in the global tech supply chain. The investments are heavily focused on high-value sectors. For the average Malaysian, this could translate into tangible opportunities over time. Experts believe several sectors stand to benefit directly:

Technology: Semiconductor equipment makers, chip designers, and testers are positioned to gain from an inflow of foreign investment as European and US companies expand their manufacturing facilities here.

Data Centres: With giants like Google and Microsoft already investing heavily, Malaysia is set to benefit from the boom in cloud computing and AI services.

Construction & Power: Building new manufacturing facilities and data centres requires significant support from construction companies and power producers.

These targeted investments could create higher-skilled jobs and drive economic growth. For investors, these sectors are certainly worth watching.

Malaysia’s trillion-ringgit US deal is a high-stakes strategy. It was a defensive move to avoid crippling tariffs and stay competitive in the region. However, it comes with significant costs and risks.

The full impact of this deal will only be clear years from now. For now, it’s a massive bet on deeper economic integration with the world’s largest economy.

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• TAGS:
• Budget
• Bursa Malaysia
• Investments
• tariff
• trillion-ringgit deal