As intensifying China-U.S. competitors reshapes world provide chains, Malaysia is discovering it more and more tough to stay on the sidelines. A latest 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 doubtlessly 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 latest U.S. army actions have been related to alleged violations of worldwide regulation. On condition 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 (Buddies of the Earth Malaysia), stated 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 critical 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 using power in worldwide relations.
“Permitting such preparations to proceed would undermine Malaysia’s credibility as an impartial voice in multilateral boards and will weaken its principled positions on conflicts involving Palestine, Iran, and elsewhere,” Raman stated.
The coalition additionally harassed that financial exercise have to be grounded in ethics and legality. “Any settlement that would lend help to conflict crimes, genocide, or crimes towards humanity can’t be justified on the idea of financial acquire. Such preparations are unconscionable and have to be condemned,” Raman added.
She additional emphasised that adherence to worldwide humanitarian and human rights regulation is key 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 are usually not complicit in worldwide wrongdoing, significantly in provide chains linked to army or battle contexts,” she stated.
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 Basic Meeting in 2001.
“Malaysia should be certain that all actors working inside its jurisdiction respect and uphold worldwide regulation, together with worldwide humanitarian regulation and worldwide human rights regulation. Underneath Article 16 of ARSIWA, Malaysia should not knowingly support or help one other state in committing acts that will be illegal if carried out by Malaysia itself, together with conflict crimes, crimes towards humanity, or genocide,” she stated.
She added that when such industrial actions happen on Malaysian soil and are accepted by regulatory and licensing frameworks, the federal government can not 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 satisfy 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 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 tough balancing act because it makes an attempt to place itself inside world provide chains.
Malaysia’s Uncommon Earth Technique
Malaysia first moved to develop its uncommon earth sector about 15 years in the past in the course of 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 ought to be prioritized for home use, with a concentrate on constructing native processing capability.
In line with 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 device, Malaysia’s strategic significance has grown. Nevertheless, he harassed that Malaysia has no intention of utilizing uncommon earths as a geopolitical instrument.
“Malaysia sits between three main powers – the US, China, and Russia. Whereas its uncommon earth reserves are comparatively modest, their strategic significance stays vital globally,” he stated.
He added that Malaysia ought to leverage this benefit not as a geopolitical bargaining chip, however to serve its personal improvement wants. “This is the reason the federal government has chosen to first develop and safe its uncommon earth capabilities earlier than contemplating exports,” he stated.
Commerce Uncertainty and Structural Vulnerability
Past authorized and moral issues, the controversy can also be unfolding towards a backdrop of rising uncertainty in Malaysia-U.S. financial relations.
In February 2026, the Supreme Courtroom of the US 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 world commerce volatility, and Malaysia grew to become 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 stated the federal government has “not obtained any official communication” from the US 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 stated 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. Companies, the exporter added, are adopting a wait-and-see method and are reluctant to pivot abruptly towards different markets akin to China.
Mohd Ramlan Mohd Arshad, a lecturer at Universiti Teknologi MARA, stated the episode uncovered Malaysia’s over-reliance on current commerce frameworks.
“The push to safe a 19 % tariff price by the ART was a tactical transfer that ignored long-term strategic positioning, leaving Malaysia susceptible as soon as the authorized foundation collapsed,” he stated.
Ramlan added that policymakers appeared unprepared for the U.S. Supreme Courtroom ruling, regardless of its well-documented tendency to restrict govt energy. “The settlement signed in October 2025 was legally fragile, and that vulnerability grew to become evident inside months,” he stated.
The ruling, he famous, doesn’t sign a reversal of U.S. protectionism however reasonably a shift in ways. “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 path stays unchanged – the tactic has shifted,” he stated.
Ramlan additionally agreed that world commerce guidelines have gotten more and more fragmented and unstable. Main economies are relying extra on unilateral measures akin 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 stated.
Navigating Between Main Powers
Trying forward, Ramlan argued that Malaysia ought to keep away from selecting sides between the US and China and as an alternative strengthen its place inside world provide chains.
“Malaysia ought to spend money on high-tech manufacturing, akin to semiconductors and AI information facilities, to change into indispensable to either side. This raises the price of coercion,” he stated.
He advocated a multi-alignment technique – deepening financial ties with China by RCEP and Belt and Street initiatives, whereas increasing cooperation with the US 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 financial system frameworks, and place itself as a impartial hub for semiconductor meeting and EV battery manufacturing,” he added.
Domestically, he harassed the necessity to improve technical requirements and labor laws to boost credibility. “Neutrality will not be passivity – it requires proactive policymaking and funding in resilience,” he stated.
Finally, Malaysia should transfer past short-term responses to tariff pressures and as an alternative construct a extra resilient, diversified, and legally sturdy financial framework – one able to withstanding a world setting the place guidelines may be reshaped in a single day by overseas authorized and political developments.
