As intensifying China-U.S. competitors reshapes international provide chains, Malaysia is discovering it more and more troublesome to stay on the sidelines. A current uncommon earths settlement between Australia’s Lynas Company and the U.S. Division of Protection has sparked home backlash, highlighting how center powers like Malaysia are being drawn into strategic – and probably military-linked – financial networks.
Earlier, a coalition of 57 Malaysian civil society organizations issued a joint memorandum opposing the roughly $96 million uncommon earths provide deal between Lynas and the U.S. Division of Protection. The teams warned that the settlement might hyperlink uncommon earth processing operations in Malaysia on to overseas army provide chains, and urged Prime Minister Anwar Ibrahim to intervene.
Of their April 14 memorandum, the coalition argued that current U.S. army actions have been related to alleged violations of worldwide regulation. Provided that uncommon earth oxides are important inputs in superior weapons techniques, they warned that permitting Lynas to course of supplies at its Gebeng facility within the state of Pahang for provide to the U.S. protection sector would successfully make Malaysia a part of that army provide chain.
Direct Army Hyperlink Raises Authorized Issues
In an interview, Meenakshi Raman, president of Sahabat Alam Malaysia (Mates of the Earth Malaysia), mentioned the coalition’s main concern is that the settlement straight hyperlinks uncommon earth processing on Malaysian soil to overseas army provide chains, thereby implicating Malaysia in U.S. army operations.
She famous that there are credible allegations that some U.S. army engagements contain severe violations of worldwide humanitarian regulation and worldwide human rights regulation. Linking Malaysia to such operations, she argued, would essentially contradict the nation’s longstanding dedication to peace and its constant opposition to the usage of power in worldwide relations.
“Permitting such preparations to proceed would undermine Malaysia’s credibility as an unbiased voice in multilateral boards and will weaken its principled positions on conflicts involving Palestine, Iran, and elsewhere,” Raman mentioned.
The coalition additionally pressured that financial exercise should be grounded in ethics and legality. “Any settlement that would lend assist to warfare crimes, genocide, or crimes towards humanity can’t be justified on the idea of financial achieve. Such preparations are unconscionable and should be condemned,” Raman added.
She additional emphasised that adherence to worldwide humanitarian and human rights regulation is prime to sustaining Malaysia’s non-aligned and impartial overseas coverage stance. “Clear authorized and regulatory safeguards are wanted to make sure that corporations working in Malaysia will not be complicit in worldwide wrongdoing, notably in provide chains linked to army or battle contexts,” she mentioned.
She additionally pointed to Malaysia’s obligations below worldwide regulation, together with the Articles on Duty of States for Internationally Wrongful Acts (ARSIWA), adopted by the United Nations Common Meeting in 2001.
“Malaysia should make sure that all actors working inside its jurisdiction respect and uphold worldwide regulation, together with worldwide humanitarian regulation and worldwide human rights regulation. Beneath Article 16 of ARSIWA, Malaysia should not knowingly help or help one other state in committing acts that might be illegal if carried out by Malaysia itself, together with warfare crimes, crimes towards humanity, or genocide,” she mentioned.
She added that when such industrial actions happen on Malaysian soil and are accredited by way of regulatory and licensing frameworks, the federal government can’t stay detached to how its territory and establishments are getting used.
“Permitting Lynas to proceed with the settlement with out correct scrutiny, regardless of clear dangers, might at greatest represent a failure to fulfill worldwide obligations, and at worst quantity to willful blindness to potential complicity in internationally wrongful acts,” she warned.
Raman added that the coalition would proceed to press for a response by way of public advocacy and social media if the federal government fails to behave.
The backlash to an settlement involving two overseas entities underscores the rising diplomatic sensitivity of uncommon earth initiatives – and Malaysia’s troublesome balancing act because it makes an attempt to place itself inside international provide chains.
Malaysia’s Uncommon Earth Technique
Malaysia first moved to develop its uncommon earth sector about 15 years in the past through the premiership of Najib Razak. Though the coverage was initially opposed by the then-opposition Pakatan Harapan, the present authorities has since taken the place that uncommon earth assets must be prioritized for home use, with a concentrate on constructing native processing capability.
Based on Azmi Hassan, a senior fellow on the Nusantara Academy of Strategic Analysis, the choice to develop the sector was in the end the precise one regardless of earlier criticism.
He famous that as China more and more leverages uncommon earths as a geopolitical instrument, Malaysia’s strategic significance has grown. Nevertheless, he pressured that Malaysia has no intention of utilizing uncommon earths as a geopolitical instrument.
“Malaysia sits between three main powers – the USA, China, and Russia. Whereas its uncommon earth reserves are comparatively modest, their strategic significance stays important globally,” he mentioned.
He added that Malaysia ought to leverage this benefit not as a geopolitical bargaining chip, however to serve its personal growth wants. “That is why the federal government has chosen to first develop and safe its uncommon earth capabilities earlier than contemplating exports,” he mentioned.
Commerce Uncertainty and Structural Vulnerability
Past authorized and moral considerations, the controversy can be unfolding towards a backdrop of rising uncertainty in Malaysia-U.S. financial relations.
In February 2026, the Supreme Courtroom of the USA dominated that tariffs imposed below the Worldwide Emergency Financial Powers Act (IEEPA) by former President Donald Trump had been unconstitutional. As these tariffs fashioned the idea of the Malaysia-U.S. Settlement on Reciprocal Commerce (ART), the settlement successfully misplaced its authorized basis.
The ruling triggered renewed international commerce volatility, and Malaysia turned the primary nation to publicly declare that the ART, signed in October 2025, was now not legitimate.
Malaysia’s Minister of Funding, Commerce and Trade Johari Abdul Ghani mentioned the federal government has “not obtained any official communication” from the USA on the destiny of the ART. The bilateral commerce relationship has thus entered a interval of serious uncertainty.
By April 2026, export-dependent companies had been grappling with tariff unpredictability and reassessing deliberate investments and procurement methods tied to the U.S. market.
A furnishings exporter mentioned corporations are reviewing their publicity to the U.S. market and implementing cost-cutting measures in response to frequent shifts in U.S. tariff insurance policies. Corporations, the exporter added, are adopting a wait-and-see strategy and are reluctant to pivot abruptly towards various markets equivalent to China.
Mohd Ramlan Mohd Arshad, a lecturer at Universiti Teknologi MARA, mentioned the episode uncovered Malaysia’s over-reliance on current commerce frameworks.
“The push to safe a 19 % tariff charge by way of the ART was a tactical transfer that ignored long-term strategic positioning, leaving Malaysia susceptible as soon as the authorized foundation collapsed,” he mentioned.
Ramlan added that policymakers appeared unprepared for the U.S. Supreme Courtroom ruling, regardless of its well-documented tendency to restrict government energy. “The settlement signed in October 2025 was legally fragile, and that vulnerability turned evident inside months,” he mentioned.
The ruling, he famous, doesn’t sign a reversal of U.S. protectionism however reasonably a shift in techniques. “The Trump administration has already pivoted to utilizing Part 301 of the Commerce Act of 1974 to launch new investigations towards a number of international locations, together with Malaysia. The route stays unchanged – the strategy has shifted,” he mentioned.
Ramlan additionally agreed that international commerce guidelines have gotten more and more fragmented and unstable. Main economies are relying extra on unilateral measures equivalent to tariffs, export controls, and subsidies, reasonably than multilateral mechanisms below the World Commerce Group (WTO).
“Malaysia is navigating overlapping regulatory regimes – from U.S.-led Indo-Pacific frameworks to EU environmental guidelines and China’s Regional Complete Financial Partnership (RCEP). These techniques function with completely different requirements, elevating compliance prices and uncertainty,” he mentioned.
Navigating Between Main Powers
Wanting forward, Ramlan argued that Malaysia ought to keep away from selecting sides between the USA and China and as a substitute strengthen its place inside international provide chains.
“Malaysia ought to spend money on high-tech manufacturing, equivalent to semiconductors and AI knowledge facilities, to turn into indispensable to each side. This raises the price of coercion,” he mentioned.
He advocated a multi-alignment technique – deepening financial ties with China by way of RCEP and Belt and Highway initiatives, whereas increasing cooperation with the USA in high-tech and safety sectors below frameworks such because the Indo-Pacific Financial Framework (IPEF).
“On the similar time, Malaysia ought to reinforce ASEAN centrality, advance digital economic system frameworks, and place itself as a impartial hub for semiconductor meeting and EV battery manufacturing,” he added.
Domestically, he pressured the necessity to improve technical requirements and labor rules to boost credibility. “Neutrality is just not passivity – it requires proactive policymaking and funding in resilience,” he mentioned.
Finally, Malaysia should transfer past short-term responses to tariff pressures and as a substitute construct a extra resilient, diversified, and legally sturdy financial framework – one able to withstanding a worldwide atmosphere the place guidelines may be reshaped in a single day by overseas authorized and political developments.
