South Korea and Malaysia Finalized Trade Agreement
The two nations reached a landmark deal to reduce tariffs and boost cooperation across 11 key sectors.
Updated on Oct. 3, 2026 in International Trade
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South Korea and Malaysia have finalized a new free trade agreement that will eliminate or reduce tariffs on various goods, including automotive parts and steel. The deal marks a major step forward after negotiations, which were suspended in 2019, resumed earlier this year.
Why it matters
The agreement aims to bolster supply-chain stability by fostering cooperation in areas like bio-based raw materials and urea solution. By integrating their industrial capabilities, both countries expect to strengthen their economic partnership significantly.
Bilateral trade between the two nations is projected to reach $27 billion in 2026, with expectations to exceed $30 billion by 2027. Malaysia is currently South Korea's 12th largest trading partner.
The players
Lee Jae-myung
He is the President of South Korea and a key figure in the trade negotiations conducted on the sidelines of the Korea-ASEAN Summit.
Anwar Ibrahim
He is the Prime Minister of Malaysia who met with South Korean leadership to finalize the bilateral trade terms.
The details
The finalized deal abolishes a 10 percent tariff on completely knocked down vehicle parts and electric vehicles while cutting tariffs on electric SUVs by 50 percent. Additionally, Malaysia will remove its 5 percent tariff on nine steel categories and reduce tariffs on 12 others, though most agricultural and fishery products remain excluded from liberalization.
Timeline
Negotiations for the agreement were suspended in 2019.
Bilateral trade talks resumed in 2025.
Leaders agreed to conclude the trade agreement on September 28, 2026.
Bilateral trade is projected to reach $27 billion during 2026.
Trade is expected to surpass $30 billion in 2027.
Market Dynamics
The deal follows the momentum of the Korea-ASEAN Summit, which serves as a critical platform for regional economic integration. It signals a move toward deepening bilateral trade dependencies as a means to hedge against global supply chain volatility.
Retail and institutional investors with exposure to the automotive and steel sectors may see shifts in margin profiles as tariff costs decline for major manufacturers. The stabilization of trade in key raw materials also suggests reduced input volatility for companies reliant on South Korean and Malaysian supply chains.
The takeaway
The finalized agreement demonstrates a strategic shift toward strengthening industrial alliances through the removal of specific trade barriers. Businesses should prepare for lower import costs on automotive and steel components as the new tariff structure takes effect.
Further reading
For more information on current global trade agreements, visit our International Trade section.
Source note: This article includes information reported by Pulse.
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