Is Malaysia trading away its economic sovereignty?

Scholars who study global inequality have long argued that trade deals between unequal partners tend to reproduce dependency rather than eliminate it. 

Cardoso and Faletto (1979) showed that such arrangements reproduce hierarchical dependency structures by locking countries into subordinate roles in exchange for security and capital. 

Economists Samir Amin and Immanuel Wallerstein called this “unequal exchange” – where weaker nations consistently get the worse end of the bargain.

Baran and Sweezy (1966) and Foster and McChesney (2011) elaborated extensively on “monopoly-finance capitalism,” in which state power is deployed to secure external raw materials for richer industries elsewhere.

A few analysts argue that Malaysia has in effect quietly surrendered economic sovereignty to Washington’s wider geopolitical agenda. The concern is that the pact risks eroding Malaysia’s moral authority.

The present endeavour amounts to a stabilisation pact rather than an industrial upgrading process.

Emir Research has argued that policy should be anchored in justice, particularly as The Monthly Review (2025) exposes trends of extractivist colonialism.

In November, former attorney general Tommy Thomas described the US-Malaysia trade agreement as “far more sinister and insidious”, concluding that “the US trade treaty is neo-imperialism at its worst”.

When he critiqued the agreement on 21 February, the focus was on constitutional process and parliamentary sovereignty. That is a legitimate concern.

Yet trade agreements are rarely just legal documents. They are instruments embedded in wider geopolitical restructuring processes, with real and lasting geoeconomic consequences.

The agreement must be analysed within four interlocking dimensions: critical minerals securitisation, strategic hierarchy formation, policy space compression and neo-imperial institutionalisation. Each is examined below.

Critical minerals and corridor control

Six days before US-Malaysia agreement was signed on 26 October, the US had already concluded a critical minerals framework with Australia.

The framework effectively consolidates a Western-aligned rare earth corridor linking Australian extraction to US processing and defence industries.

This sequencing matters. Malaysia possesses significant rare earth and downstream processing capabilities. But once the framework began entrenching Australia as the principal strategic supplier, Malaysia’s bargaining position narrowed. 

Viewed in this light, the US-Malaysia pact appears less as a partnership of equals and more as a secondary integration mechanism – aligning Malaysia into a supply chain architecture already controlled by Washington.

The logic is geo-economic: secure upstream nodes in Australia, standardise midstream governance through Malaysia, and restrict technological spillovers that might empower alternative partners such as China. In simpler terms: the US has already decided who sits at the top of the table. Malaysia is being invited to fill a specific seat – not to choose its own.

Scholars of dependency theory warn that integration into global value chains often deepens technological reliance rather than generating autonomous industrial upgrading.

The US-Malaysia agreement’s investment and procurement clauses – especially when read alongside the US-Australia framework – risk locking Malaysia into compliance standards that privilege US strategic interests over diversified South-South collaboration.

A hierarchy reordering

The Trump administration’s strategic posture signals a reversion to overt power hierarchy management. Unlike earlier liberal-globalisation rhetoric, Washington now frames supply chains, technology and minerals explicitly as instruments of national security.

In this light, Malaysia’s elevation to a ‘comprehensive strategic partnership’ with Washington, announced at the 47th Asean summit in Kuala Lumpur last October, is not symbolic diplomacy buts positional geopolitics. In plain terms: being called a ‘strategic partner’ comes with strings attached.

Such elevation embeds Malaysia within a US-led Indo-Pacific security architecture alongside treaty allies – and carries expectations: alignment in export controls with enforced tariffs, digital governance in data centre operations, US naval exercises and maritime positioning along the Strait of Malacca, and resource flows from rare earth elements to semiconductor circuit boards.

This recalibration coincides with speeches delivered at the Munich Security Conference by US leadership outlining a doctrine of “sustained global leadership”. The message is clear: supply chain security is inseparable from alliance discipline.

The US-Malaysia trade pact cannot be isolated from this worldview. It becomes a trade-security hybrid instrument, merging economic concessions with strategic alignment.

Compression of policy space

The US-Malaysia trade pact constrains Malaysia’s economic developmental flexibility.

Historically, Malaysia has leveraged policy instruments – such as local content requirements, state-linked enterprise coordination and selective capital controls – to build sectors from palm oil to semiconductors. These tools gave the government room to shape the economy on its own terms.

The US-Malaysia trade pact risks taking that room away. Reciprocal trade frameworks can be restrictive with the emergence of differential tariff tools, strategic subsidies and technology transfer conditions.

Public procurement preferences, once purely domestic policy, become subject to bilateral power differentials when embedded within an asymmetric arrangement such as the trade pact.

Policy autonomy is no longer simply about formal clauses; it is about credible retaliation capacity. If Malaysia cannot credibly push back, the ‘reciprocal’ in reciprocal trade is largely theoretical. 

Malaysia’s export dependency on US markets magnifies this asymmetry. The more security-sensitive sectors are incorporated into ‘reciprocal’ arrangements, the less room remains for alternative partnerships with Asean, China or the Global South.

In dependency terms, Malaysia risks functioning as a regulatory harmoniser rather than an industrial strategist.

Neo-imperial institutionalisation

Finally, the US-Malaysia pact participates in a broader architecture of 21st-Century neo-imperialism – not through territorial control, but through standards, security doctrines and financial leverage.

Modern economic dominance operates through standards-setting dominance, sanctions architecture, dollar liquidity systems and technological chokepoints.

When trade agreements are synchronised with national security doctrines, they institutionalise hierarchy without formal colonialism.

Malaysia’s semi-peripheral position makes it especially vulnerable. While gaining symbolic recognition as a strategic partner, the country simultaneously absorbs obligations aligned to the maintenance of US global primacy. The paradox is striking: elevation in status has coincided with contraction in autonomy.

Tommy Thomas is right to question constitutional procedure.

But even full parliamentary ratification would not resolve the deeper structural question: does the US-Malaysia trade pact expand Malaysia’s developmental sovereignty, or does it consolidate its insertion into a US-led strategic hierarchy?

The wider context suggests the latter. The prior conclusion of the US-Australia critical minerals framework secured the core mineral corridor. Washington’s strategic posture articulates a hierarchical security doctrine. The ‘comprehensive strategic partnership’ embeds Malaysia institutionally. The US-Malaysia trade pact operationalises compliance.

Taken together, these four dimensions point in one direction: deeper dependency. Malaysia risks being fixed into externally determined supply chains, its economic policy aligned with US security expectations, its industrial policy options narrowed and its long-term standards conformity locked in.

This is not an argument for disengagement from the US. The US remains Malaysia’s largest trading partner, with bilateral trade reaching RM325bn in 2024 alone.

Rather, it is a call – in the public interest – for strategic pluralism. Malaysia’s long-term interest lies in preserving diversified partnerships – in Asean, China, the Middle East and Latin America – while retaining industrial discretion.

Without such balance, reciprocal trade becomes reciprocal only in form, not in structural effect.

In the 21st Century, sovereignty is not lost through conquest. It is diluted through alignment.

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