[IRF] Has Malaysia Given Up Neutrality on Its Foreign Policy Sovereignty?
Muziru
By Osman Softič || 17 November 2025
Malaysian media outlets have been flooded with headlines about how Malaysian prime minister Anwar Ibrahim played a key role in enabling America’s victory over China in the battle to control global supplies of rare earth elements and minerals. This came after the Malaysian government undertook to provide the United States with unlimited supplies of these valuable minerals.
The agreement was signed in Kuala Lumpur on 26 October by Malaysia’s prime minister Anwar Ibrahim and US president Donald Trump. The reciprocal trade agreement, which has been touted as a pact to strengthen reciprocity and security in supply chains, has sparked a number of reactions in Malaysia. The agreement was signed during the expanded summit of the Association of Southeast Asian Nations (ASEAN) that was held in Kuala Lumpur in late October, 2025. During the summit, East Timor, a tiny Catholic-majority state in the Indonesian archipelago, was also admitted as the eleventh member of this important regional multilateral organization.
Malaysia pledged to supply the United States, with no restrictions, with unlimited quantities of rare earth elements and minerals that can be mined in Malaysia and which the US needs in order to compete with China in what could be a marathon race for dominance in the domain of future technologies. With this move, Kuala Lumpur took away a trump card from Beijing it held in dealings with Washington when it comes to this competitive field.
Malaysia’s decision significantly reduced the negative effects of China’s tariff retaliation against America. In addition, it was also a clear sign that when it comes to the US-China trade war, Malaysia did not display neutrality. Rather, it sided with the US.
Anwar Pivots to the US
Malaysia thus signaled to Beijing that it did not want China to dominate over America in the field of future technologies. Under different circumstances, Anwar’s decision could be seen as a well-thought-out balancing act, but given Donald Trump’s pompous welcome to Malaysia, despite open criticism from various circles, and given Anwar’s perceived closeness to Washington, as well as his unshaken pursuits of strengthening Malaysian economy by attracting American investment; it could be said that Anwar has ultimately pivoted to Washington, after all, following example of his friend Recep Tayyip Erdogan in Turkey.
This clearly indicates that the earlier talk of his administration’s neutrality was only a rhetoric to placate his opponents.
Anwar’s commitment to unrestricted exports of rare earth elements and minerals which Malaysia possess in reasonable quantities to the United States have allowed America to, at least in the short term, win the battle if not the war against China in the global competition for control of the supply of valuable elements. Without the command over rare earths, its mining and processing, as well as its reasonable control of global supply chains, America cannot compete with China, that boasts superiority over the United States in the field technologies of the future. After Trump’s return from Kuala Lumpur, US Treasury Secretary Scott Bessent boasted that America had just achieved victory over China.
Speaking to the Financial Times, Bessent claimed a major victory against China, saying the US had weakened China’s control over rare earth elements and minerals, thanks to the Reciprocal Trade Agreement that Malaysian prime minister Ibrahim signed with Trump in Kuala Lumpur on 26. October, 2025. “Within two years, the US will diversify its sources of rare earth substances. Thanks to Malaysia and other partners, we are no longer at the mercy of Beijing.” China is the world’s largest exporter of these elements and is dominant in their processing. Beijing still has a global monopoly on rare earth elements, but, according to Bessent, it will be able to maintain this dominance for another two years at most.
Anwar Ibrahim appeared to have placed a wedge in the wheel of China’s dominance in the sphere of rare elements and thus clearly directed the wind into America’s sails. Anwar, although some critics had previously accused him of being close to China, confirmed not only Malaysia’s utilitarian value to Washington in trade and technology war with China, but also demonstrated his government’s unreserved servitude to the United States.
With this move, Anwar effectively took the levers of power out of China’s hands, undermining its dominance. It is not yet clear how China might react and whether it will take any measures against Malaysia. But Beijing will unlikely remain indifferent to this development.
The ‘turncoat’ Anwar
Critics of the Malaysian prime minister were left outraged that the former Islamist dissident who had once been co-opted into the Malaysian developmental government model under Mahathir Mohammed, and who is often accused of supporting Hamas, agreed to sign a reciprocal trade deal with Trump on such unfavorable terms.
Among his critics, the most vocal is the former prime minister and chief architect of Malaysia’s post-colonial economic development (and modernization), Anwar’s one-time mentor and later opponent, Tun Dr. Mahathir Mohammad. The former Malaysian leader, economic nationalist and informal spokesman for third world countries, accused his former renegade minister Anwar Ibrahim of surrendering Malaysian sovereignty to America.
The signed agreement provoked outrage from the opposition and a significant part of the public for what economic experts described as a renunciation of Malaysia’s trade independence. Anwar’s administration promised to facilitate the development of the rare earths sector in partnership with American companies, pledging not to ban or impose quotas on their exports to the United States. In return, Trump pledged to freeze the level of tariffs on Malaysian goods exported to the US market at 19 percent.
The US ambassador to Malaysia, Edgard Kagan, opened fire on Anwar’s critics, in the manner of a modern-day proconsul or a colonial governor, telling them to stop talking about sovereign rights. Ambassador Kagan explicitly sided with the now clearly pro-American prime minister, angrily commenting on criticism that Anwar had “handed over Malaysia’s sovereignty” to Washington. Judging by the US ambassador’s praise of the Malaysian prime minister, one gets the impression that Malaysia may no longer enjoy the sovereign and non-aligned status it once portrayed itself to have been. Kagan praised what appears to be a highly controversial trade deal that prime minister Anwar Ibrahim signed with Trump.
A former senior leader of the Democratic Action Party (DAP), P. Ramasamy, a major coalition party currently in power in Malaysia, which he since had left, sharply criticized the US ambassador Kagan for his comments praising Malaysia’s recent trade agreement with Washington as “mutually beneficial,” despite the public outcry and criticism from experts who described it as “one-sided” and even as a surrender of Malaysian sovereignty to Washington. “Kagan should refrain from adding fuel to the fire by talking about how this was a successful deal,” he said.
Ramasamy, who served as deputy Chief minister of Penang (one of Malaysia’s 13 federal states), an academic turned politician who leads a minor Indian-based opposition Party Bersepakat Hak Rakyat Malaysia – URIMAI (United for the Rights of the People), criticized US ambassador for “dressing up” the agreement that caused public outrage and numerous controversies in Malaysia. Ramasamy, quite rightly, told Kagan to stop interfering in Malaysia’s internal affairs and to refrain from pontificating to the citizens of Malaysia about what is beneficial for them and what is not, saying that Malaysians know best what is best for them.
The Malaysian public, economists and numerous oppositional politicians have warned that the aforementioned agreement deprives Malaysia of its sovereignty and regulatory capacity. According to experts, numerous provisions of the agreement, which was adopted hastily, without broad consultations and as a shortcut, purportedly without adequate debate in parliament, are contrary to Malaysia’s long-term interests.
Sovereignty Loss
One of the most controversial clauses of the agreement that has particularly worried citizens and caused their indignation is a provision that practically obliges Malaysia to become a direct participant in American economic conflicts. Malaysia is required to adopt the same measures against that country if Washington imposes sanctions or tariffs on a third country on the grounds of protecting American national security.
In practice, this means that Malaysia will not be able to make sovereign decisions in the field of foreign policy. In other words, it is a matter of taking away Malaysian sovereignty and finally abandoning a long-standing foreign policy characterized by non-alignment.
Malaysia, under the terms of the agreement, will have to respect American sanctions against other nations. Anwar Ibrahim and his Minister of Trade, Investment and Industry, Tengku Zafrul bin Abdul Aziz, have denied the accusations of the opposition and independent experts.
Prominent Malaysian economist Muhammed Abdul Khalid, a former economic policy advisor to Tun Mahathir’s second government (2018-20) who was educated in Paris and California, concluded that the signed agreement was unprecedented in Malaysia’s history and that it was the first time that a Malaysian prime minister had renounced his country’s sovereignty.
“They have imposed an unfair trade agreement on us, which has stripped us of our sovereignty. The agreement is grotesquely one-sided and in favor of one party. It reminds me of the old era of vassal states,” said Muhammad Abdul Khalid. “Let’s not delude ourselves, this is not a trade agreement, this is a complete capitulation to the American hegemon,” commented this seasoned Malaysian economist in a detailed evaluation of the agreement’s controversial clauses. “This is a chilling throwback to the era of the British one-time advisors and Malay sultans, where advice was essentially a euphemism for dictate. If this is not submission to an imperial foreign power, then what is?” Muhammad Abdul Khalid bitterly lamented.
“Modern Imperialism”
Former Malaysian prime minister Dr. Mahathir Mohammad, who celebrated his 100th birthday a few months ago, commented on the trade agreement, saying that he never believed he would live long enough to see this kind of capitulation. Mahathir, who ruled Malaysia for two decades, dismissed Anwar Ibrahim from his posts of deputy prime minister and finance minister in 1997 because of Ibrahim’s advocacy of liberal economic policies that were favorable to the IMF, World bank, and Western interests. Ibrahim, as a political dissident, spent five years in prison on two occasions, and was perceived as a victim of political repression. He did not surrender and in the end, again thanks to Mahathir, received an official pardon from the head of state (the King of Malaysia) so that he could become prime minister.
Mahathir lived long enough to witness along with Malaysian people he sometimes had difficulty convincing Anwar’s misguided policies, which he opposed, that were truly harmful to Malaysian interests. Anwar rose to power on the wings of justified protests against corruption, supported by the West but viewed by some as a color revolution, in order to serve the economic and strategic interests of the West.
Tun Dr. Mahathir said the agreement Anwar had signed was neither a “partnership” nor “reciprocal”, as government officials claim. “It is a surrender of our economic freedom that we have worked hard to build and protect.” “We agreed to buy their planes, petrol and machinery, to obey their digital rules, to have them first use our rare earths and minerals, to open our market to their goods on their terms, not ours, and to have them dictate who we can and cannot do business with. We agreed to all this only to have tariffs on our goods eased. We agreed to receive crumbs,” said this former veteran Malaysian leader Dr Mahathir, who made nationalization of the Malaysian economy a cornerstone of his two-decade long rule. Dr Mahathir, despite his iron fist rule, is viewed as a major architect of Malaysia’s impressive economic development in the 1980s and 1990s.
Mahathir described Anwar’s trade deal with America as a form of “modern imperialism” and “neo-colonialism” that the nation’s founding fathers warned against in the early years of Malaysian independence. “Stop covering it up with the lexicon of trade and cooperation or diplomatic platitudes, admit that you sacrificed our independence because you lacked the courage to stand up to a powerful power that you wanted to curry favor with. You are courting a power that is aiding and abetting genocide against the Palestinians,” Mahathir Mohamad said, referring to Washington’s military aid to Israel. “We have literally surrendered our sovereignty to America.”
The lopsided US trade deal
Prime minister Anwar dismissed the accusations, saying he was impressed by some of Trump’s privately confided admissions on Gaza, but said it was a gentleman’s conversation whose content he did not want to reveal publicly. Dr. Rais Hussin, founder and director of the Center for Strategic and International Studies (EMIR) in Kuala Lumpur, also criticized the agreement, saying that “Malaysia’s strength lies in its credible neutrality, the dignity of the global south and a policy based on justice,” warning of subtle compromises hidden in the tariff policy. Hussin believes the agreement contains clauses that strike at the core of Malaysian sovereignty.
Tying Malaysia’s trade policy to US economic and security policy means it is explicitly pushing for alignment in the field of national security. This includes cooperation on security-sensitive technologies, unilateral US export controls and restrictions on doing business with entities on US sanctions lists. When translated into plain language, these provisions subordinate foreign and economic policy to Washington. Malaysia’s economic and industrial sovereignty is being eroded. Malaysia is required to promote US investment in strategic sectors such as energy, telecommunications and infrastructure, while the agreement commits Malaysia to investing US$70 billion in the United States over the next decade.
In the technological and digital sphere, the loss of sovereignty is even more pronounced, as it limits the ability to regulate data flows and requires consultation with Washington before concluding any new digital trade agreements. Malaysia is giving up control over its digital future, an area that will determine its competitiveness in the coming decades. Malaysia’s strategic autonomy is further threatened by clauses that blur the line between trade and security. The agreement mandates the alignment of defense exports and procurement, and prohibits the purchase of nuclear energy from certain countries.
In practice, this means placing Malaysia’s freedom of choice in the field of national security under US supervision and undermining its foreign policy doctrine of active neutrality, which is one of the foundations of ASEAN’s stability.
Critics of the agreement from the perspective of Islam argue that the trade agreement also undermines the authority of the State Department for Islamic Development (Jabatan Kemajuan Islam Malaysia – JAKIM), allowing the use of any halal logo certified by the US on products imported into Malaysia. This could potentially undermine Malaysia’s global leadership in the halal economy and discriminate against other Malaysian trading partners, countries with larger Muslim populations, such as China or India. Under the signed agreement, Malaysia will not be able to require halal certification of cosmetics, pharmaceuticals and medical devices imported from the US. Moreover, Malaysia will have to accept the use of halal logos issued by any US halal certifier designated by the Department of Islamic Development Malaysia.
The commitments represent a structural dependency disguised as partnership. According to Hussin, only Cambodia has concluded a similar agreement, but even its agreement contains explicit safeguards that require that the implementation of the agreement must not violate Cambodia’s sovereignty and limits the alignment solely to the economic domain, not national security. Thailand and Vietnam are still negotiating, while Singapore and Indonesia have not even entered into negotiations, Hussin added. The question of why Malaysia hastily signed such an important document indeed requires a separate analysis.
The agreement also requires large purchases from US suppliers, including in the aerospace, energy and digital infrastructure sectors. Although described as commercial transactions, purchases in these sectors will inevitably also involve government-linked corporations, such as Malaysian Aviation Group (Malaysia Airlines), Petronas, Telekom Malaysia and others.
In other words, parts of the agreement threaten to tie Malaysia to expensive systems that will be serviced by foreign companies in the long term. This inevitably reduces the space for domestic industry and innovation. The combined exposure could ultimately exceed as much as $240 billion, Hussin argues. Tying Malaysia to Washington’s security architecture represents a serious oversight gap that must be addressed transparently and corrected without delay. It is about protecting the nation’s future and restoring the moral and strategic compass that defines Malaysia’s place in the world, the founder and director of the EMIR Center argued, critically.
Trust deficit
By signing the trade agreement, Anwar has fueled old accusations that he did not enjoy the trust of most Malaysians, especially majority Malays and that he is openly backing western hegemonic policies. Anwar is a former dissident and president of a relatively small political reformist multiethnic but predominantly Malay party, with major support in urban strongholds among affluent professionals and former Islamists and liberal leaning Malaysians alike. However, Anwar leads a ruling coalition cobbled together without strong popular support. The accusations leveled against him by Mahathir back in 1998, when he ousted Anwar from his government during the Asian financial crisis, are now gaining new momentum and the former veteran prime minister may well have lived to be vindicated in his curtailment and ill treatment of Anwar by his administration and those of his successors in the past.
Osman Softić is a Research Fellow at the Islamic Renaissance Front. He holds a BA degree in Islamic Studies from the Faculty of Islamic Studies of the University of Sarajevo and has a Master degree in International Relations from the University of New South Wales (UNSW). He contributed commentaries on Middle Eastern and Islamic Affairs for the web portal Al Jazeera Balkans, Online Opinion, Engage and Open Democracy. Osman holds dual Bosnian and Australian citizenship.