On Sunday, as leaders gathered in Kuala Lumpur for the ASEAN summit, U.S. President Donald Trump announced trade deals with Malaysia and Cambodia, as well as framework agreements with Vietnam and Thailand that will be finalized in the coming weeks.
Trump said that he was in Kuala Lumpur on “a mission of friendship and goodwill” and to “promote strongly stability, prosperity, and peace” among the ASEAN members “and beyond.” He said the United States “intends to be a strong partner and friend for many generations to come.”
Despite these assurances, the ASEAN countries are likely skeptical. The Trump administration’s imposition of “reciprocal” and other national security–related tariffs, promotion of reshoring, and elimination of foreign aid deeply shook their trust in the United States as a reliable partner. They saw ASEAN as a key player in the evolving regional trade and investment landscape and expected economic ties to continue to grow as U.S. frictions with China intensified. But the tariffs served as a wake-up call for ASEAN countries, leading them to reevaluate their expectations for the relationship and rethink their long-term economic interests.
Nonetheless, other Southeast Asian countries will be under pressure to quickly reach agreements—which will likely mirror Malaysia’s and Cambodia’s—to avoid putting their economies at a competitive disadvantage.
What’s in the Agreements
The U.S. agreements with Malaysia and Cambodia are generally similar, although the two deals include bespoke elements to address issues specific to each country. Cambodia agreed to eliminate tariffs on U.S. goods once the agreement goes into effect. Malaysia agreed to eliminate or reduce tariffs on some U.S. goods and reduce them by set percentages on others. In return, rather than corresponding cuts to eliminate import tariffs, the United States agreed to maintain a tariff rate on Malaysian and Cambodian goods of no higher than the 19 percent, though certain goods will be exempted from the higher tariffs.
Neither agreement includes rules of origin, which determine if a product can obtain benefits such as lower tariffs under the trade agreement, but both include rules to prevent third countries or third-party nationals (such as China) from benefitting from the agreement. The Malaysia agreement includes an intentionally blank section on rules of origin, suggesting that rules to limit inputs from China and possibly also from Chinese-invested companies in Malaysia will be forthcoming.
Although not as detailed as U.S. free trade agreements, both agreements include meaningful obligations on a broad range of trade rules, such as nontariff barriers, industrial and agricultural standards, services, intellectual property, labor, environment, digital trade, and competition by state-owned enterprises. They also address barriers to access to these markets that U.S. manufacturing, agricultural, and other businesses have long pressed the U.S. government to tackle.
New features in these agreements are commitments on economic security issues, which are clearly—though not explicitly—aimed at China. These provisions may be perceived as subcontracting or subordinating Malaysian and Cambodian economic and national security interests to those of the United States for potentially ephemeral gains. Malaysia and Cambodia agreed to take actions to align their export control and sanctions regimes with the United States’. They also agreed to impose restrictions on imports of third-country goods or services similar to the United States’. In addition, they agreed to implement measures to address unfair practices of companies owned or controlled by third countries operating in their jurisdictions that could hurt U.S. trade interests.
To address their trade deficits, both countries agreed to purchase U.S. goods, including aircraft. Malaysia also agreed to buy security equipment, liquified natural gas, semiconductors, aerospace equipment, data center equipment, coal, and telecommunications goods and services. In addition, Malaysia committed to potential investments in the United States of $66 million and facilitation of $70 billion in investments in the United States over the next ten years.
Neither agreement includes traditional dispute settlement provisions establishing processes for amicably resolving disputes, and the texts are drafted in a way that allows the United States to retain significant leverage over its trading partners in the future. The provisions permit a party to take action without consultation if it believes the other party has not complied with the agreement. The Malaysia text allows either party to impose additional tariffs “to remedy unfair trade practices, to address import surges, to protect its economic or national security, or for other similar reasons consistent with its domestic law,” but it is unlikely that the Malaysian government would risk U.S. ire by taking such an action.
What the Agreements Signal
For now, many Southeast Asian countries see bilateral agreements with the United States as the least-worst option. As in the classic prisoner’s dilemma, fear that one country would capitulate to try to gain a regional competitive advantage prevented them from coordinating on collective red lines for negotiations with the United States. That left each of them exposed and alone to try to cut the best deal they could to maintain their access to the U.S. market.
The U.S. commitment to maintain Malaysian and Cambodian tariffs at 19 percent will provide them at least some temporary relief. They believe the agreements will allow them to avoid immediate economic stress while creating opportunities for cooperation. One such area is critical minerals, a sector Malaysia and Thailand seek to develop, and on which they signed memorandums of understanding with the United States. Moreover, the deals buy them time to diversify their trading relationships away from the United States, as many Asian countries are urgently seeking to do.
At the same time, the two countries know that the United States could decide to unilaterally raise tariffs for a perceived implementation breach or to address imports of a product it declares a threat to national security at any time in the future. Moreover, they are well aware that subsequent U.S. deals with other countries, including China, could not only could undermine the competitive advantage they had hoped to maintain through their bilateral agreements, but also actually put them at a competitive disadvantage. Such concerns are further fueling their resiliency efforts and are a reminder of the risk of antagonizing China, their largest two-way trading partner.
Meanwhile, how China will react to the economic security measures in these trade agreements remains to be seen. China will be highly sensitive to commitments it views as ASEAN countries siding with the United States against its economic interests, and it will be prepared to respond with countermeasures aimed at Southeast Asia, and potentially the United States as well.
-1.png)
