Malaysia-US Trade Agreement: Food Sector Implications

Malaysia-US Trade Deal: Key Food Industry SummaryMalaysia will reduce tariffs on 98.4% of US goods in exchange for lower US tariffs on select Malaysian exports.Palm oil exports from Malaysia to the US will now face zero tariffsDespite tariff relief, bans on major firms like FGV Holdings over alleged forced labour remain unresolved, limiting palm oil gains.SMEs may see limited benefits, as most gains apply to large-scale exporters in palm oil and cocoa sectors.The deal affects only 12% of Malaysia’s exports to the US, sparking criticism over perceived imbalance.Malaysia signed a new trade agreement with the United States at the recent ASEAN Summit in Kuala Lumpur, agreeing to reduce tariffs on 98.4% of US products in order to get a lower reciprocal tariff rate on products it exports to the US.

The reciprocal tariffs implemented by US President Donald Trump earlier this year have fluctuated in value for some markets since first announced in March, with Malaysia first hit with a 24% tariff, then 25%, and now finally 19% after the negotiations resulting in this new trade agreement.

Here are some of the most significant food-related changes likely to impact the industry – or not.

Palm oil and cocoa-based food ingredientsOne of Malaysia’s most important exports is palm oil, and on the surface this sector looks all set to benefit from the latest agreement as one of the results here is that there will now be zero tariffs on palm oil exports to the United States.

Between January to September 2025, Malaysia exported some 346,000 metric tonnes of palm oil to the US.

“The zero-tariff for Malaysian palm oil is a positive development,” Malaysia Palm Oil Council (MPOC) CEO Belvinder Sron said.

“Our exports to the United States have recorded strong growth over the past two years, and this measure will further strengthen Malaysia’s competitive position in a high-value and rapidly evolving market.”

However, there are still several areas to consider in the face of expanding palm oil exports to the US market – one of which is the long-time differences in opinion between the two markets when it comes to working conditions.

Back in 2020, the US banned entry on palm oil from Malaysia’s government-linked FGV Holdings Berhad over purported use of forced labour on plantations – a ban that has not yet been formally removed till date.

The fact that this ban has remained in place for five years and counting, with no sign of letting up, is a clear indicator that no agreement has been reached between both sides regarding the labour conditions, and FGV has strenuously denied allegations of forced labour and since the initial accusation.

FGV is one of the largest palm oil companies in Malaysia and globally, and recently filed for delisting from the local stock exchange – a further sign that a firm conclusion is likely to emerge regarding the forced labour situation any time soon.

Furthermore, FGV is not the only palm oil firm that has seen a ban from the US – another palm oil giant Sime Darby was also issued a ban in 2020 over similar circumstances. The ban was removed in 2023, but the fact remains that zero-tariffs alone are unlikely to be a silver bullet for the palm oil sector.

Malaysia also secured zero-tariff rates for all of its cocoa ingredient exports to the United States, and this sector is likely to fare better than palm oil.

Cocoa is one of Malaysia’s top exports to the US, valued at some US$43.4bn as of 2024 according to the UN COMTRADE database.

This is unsurprising considering the US is also the top consumer of chocolate globally with total chocolate consumption coming in at over 387,000 tonnes, so this is clearly a market that Malaysia cannot afford to lose.

Small and medium food companiesThe is however an appearance of imbalance, mainly due to the fact that the United States has only agreed to zero-tariffs for a few sectors (palm oil, cocoa above as well as aerospace equipment, pharmaceuticals and rubber) in comparison to Malaysia’s concession to reduce or eliminate tariffs on over 98% of US products as mentioned above.

This means that only a small percentage of companies are likely to benefit from this, and even fewer of these are going to be food and beverage firms, unless these specialise in the new tariff-free categories – e.g. SMEs that are exporting chocolate products to the US.

The reality though is that most of the companies involved in large-scale palm oil and cocoa-based ingredient trade are going to be larger enterprises, so benefits to SMEs are unlikely to be immediately obvious.

In the end, is it worth it?The United States was Malaysia’s largest export market as of 2024, overtaking China with a total of RM325bn (US$77.4bn) in total bilateral trade, hence Malaysia’s eagerness to cement better trade relations.

All in all, the new trade agreement is expected to impact some 12% of Malaysia’s exports to the US in total, and this much-smaller number than the US’ 98.4% has resulted in a great deal of blowback for Malaysian Prime Minister Anwar Ibrahim.

What the US got out of the deal:

Machinery and advanced manufacturing equipment
Medical devices
ICT hardware
Industrial polymers and processed metals
Food and agricultural goods

30 aircraft, plus purchase option for 30 additional aircraft
Semiconductors, aerospace components and data centre equipment (Est. value: US$150bn)
Five million tonnes per annum liquefied natural gas (Est. value: US$3.4bn)
Coal and telecommunications products and services (Est. value: US$204.1 m)

In addition to the terms above, a lot of flak has come from a clause (Article 5.1) in the agreement stating that ‘If the United States imposes a customs duty, quota, prohibition, fee, charge, or other import restriction on [a third country], Malaysia shall adopt or maintain a measure with equivalent restrictive effect’.

The local opposition party highlighted fears that this would mandate Malaysia to follow the US’ political direction, putting it in the centre of conflicts between the US and China or forcing it to take part in sanctions on other markets.

Prime Minister Anwar has refuted these challenges, stressing that there are exit clauses in the trade deal that would enable Malaysia to back out when needed.

“We signed this because we need American investments, and I will not apologise for that,” he told the floor at a recent parliamentary hearing.

“Don’t just criticise and claim that we are America’s puppet [or] that this is new colonialism as there is none of that happening.”

However, the prime minster is facing criticism from far more than just the opposition party as many social media comments are making similar accusations.

“Malaysia is making so many sacrifices to the US [such as] buying natural gas and coal from them even though we have our own resources, [it’s like the] country is being sold, yet we’re still getting a 19% tariff [on most goods,” said one netizen.

“It looks a lot more like we’re getting scammed by the US,” said another.

Malaysian Investment, Trade and Industry Minister Tengku Zafrul Aziz has also been busy defending this deal, saying that it is crucial for Malaysia to achieve more stability in the long run.

“The tariff cut [from 25% to 19%] is strategic liberalisation [which will] boost the competitiveness of Malaysian exporters, and will give both sides more certainty,” he said in a formal statement.

“All joint actions will be a part of shared economic concerns by both Malaysia and the US [and the Article 5.1 clause] does not mean Malaysia is mandated to follow anyone’s direction.”

The jury is still far out about whether Anwar’s government is correct about long-term stability and benefits for the local economy – but there is little doubt that in the short term, the food industry should not expect any windfalls as a result of the new trade agreement.