Malaysia’s rare earth sector is being reshaped by global trade alliances, strategic resource controls, and geopolitical tensions. This commentary explores Malaysia’s emerging role and outlines a policy roadmap for national resilience and leadership.
By Dr Mohd Safar Hasim
The global rare earth elements (REE) landscape is undergoing a profound transformation. Recent developments involving the United States, Australia, Japan, China, and the European Union have triggered a reconfiguration of supply chains, trade alliances, and strategic resource control.
Malaysia, home to Lynas Rare Earths’ key processing facility in Kuantan and a growing player in REE diplomacy, finds itself at the heart of this transformation. This commentary explores how these geopolitical dynamics affect Malaysia and outlines strategic recommendations for national resilience, economic opportunity, and diplomatic balance.
1. US–Australia Agreement: Malaysia’s Embedded Role via Lynas
On 20 October 2025, President Donald Trump and Prime Minister Anthony Albanese signed the United States–Australia Framework for Securing Supply in the Mining and Processing of Critical Minerals and Rare Earths at the White House. The agreement commits US$8.5 billion to joint REE projects, regulatory harmonisation, and strategic stockpiling. A direct consequence is Lynas Rare Earths’ expansion into Texas, supported by US defence contracts and financing from the Export-Import Bank.
Malaysia’s involvement is structural, not incidental. Lynas’ Kuantan facility remains the world’s largest producer of separated light REEs outside China. Feedstock processed in Malaysia will be refined in Texas, making Malaysia an indispensable link in the Western supply chain.
This elevates Malaysia’s strategic relevance but also exposes it to geopolitical scrutiny, particularly from China, which may view Lynas as a Western decoupling instrument.
Malaysia must not remain a passive conduit. It should assert its role through bilateral agreements that guarantee technology transfer, environmental safeguards, and local workforce development. A national REE strategy, tabled in Parliament, is imperative to align industrial policy with geopolitical realities.
2. US–Japan–Korea Cooperation: Malaysia as the Third Country Partner
While Japan initially proposed REE cooperation with the US in June 2025, a formal strategic agreement was announced on 23 October 2025 between REAlloys Inc. (US) and JOGMEC (Japan’s Organisation for Metals and Energy Security). The memorandum of understanding includes joint development, technology transfer, and structured offtake arrangements for neodymium-iron-boron (NdFeB) and samarium-cobalt (SmCo) magnets.
Malaysia, with its Lynas infrastructure and longstanding Japanese investment, is the natural third- country partner. South Korea’s collaboration with Lynas in producing heavy REEs further strengthens this trilateral potential. This opens a window for Malaysia to position itself as a regional REE processing hub, supported by Northeast Asian technology and capital.
A trilateral REE dialogue with Japan and Korea should be initiated, focusing on joint refining projects, R&D collaboration, and sustainable mining practices. The Ministry of Investment, Trade and Industry (MITI) should lead a task force to explore incentives for Japanese and Korean firms to expand REE operations in Malaysia.
3. US–China Trade Escalation: Perak’s REE Diplomacy in the Spotlight On 10 October 2025, the United States announced a sweeping 100% tariff on all Chinese imports, effective 1 November 2025, in retaliation for China’s expanded rare earth export controls.
In parallel, Malaysia—particularly the state of Perak—has been courting Chinese investment in REE exploration and processing. This dual alignment places Malaysia in a delicate position.
On one hand, Malaysia benefits from Chinese expertise and capital in developing its REE reserves. On the other, it risks being caught in the crossfire of US–China strategic competition. If Malaysia is perceived as facilitating China’s circumvention of Western controls, it may face secondary sanctions or diplomatic friction.
Malaysia must adopt a transparent and rules-based approach to REE partnerships with China. All agreements should be publicly disclosed and subject to environmental and strategic review. A national REE oversight commission, comprising government, industry, and civil society, should be established to ensure accountability and alignment with Malaysia’s long-term interests.
4. China’s Export Controls and Europe’s Crisis: Malaysia’s Emerging Leverage
China’s new export rules require licensing for any product containing more than 0.1% China-sourced REEs or using Chinese processing technology. On 20 October 2025, the European Commission convened emergency talks with industry stakeholders after reporting production halts, economic harm, and regulatory uncertainty.
Malaysia, with its Lynas facility and potential for domestic REE development, is poised to benefit from Europe’s search for alternative suppliers. However, this leverage must be managed wisely.
Malaysia must ensure that its REE exports meet European sustainability and human rights standards. Failure to do so could result in reputational damage and trade barriers.
Malaysia should engage with the European Union to explore REE trade partnerships under the Critical Raw Materials Act (CRMA). A Malaysia–EU REE dialogue should be convened to align standards, facilitate investment, and promote mutual resilience.
Strategic Risks and Opportunities
Risks:
* Geopolitical pressure: Malaysia may be forced to choose sides in the US–China rivalry.
* Environmental concerns: REE processing poses significant ecological risks if not properly regulated.
* Supply chain vulnerability: Overreliance on any single partner—be it China, Lynas, or Japan—could expose Malaysia to disruptions.
Opportunities:
* Regional leadership: Malaysia can lead ASEAN in crafting a collective REE strategy.
* Economic diversification: REE development can spur growth in high-tech manufacturing, green energy, and defence.
* Diplomatic capital: Malaysia’s neutral stance and hosting of US–China talks position it as a trusted mediator.
A Five-Point Action Plan for Malaysia
1. Table a National REE Strategy
Introduce a comprehensive REE policy in Parliament, covering exploration, processing, export, and environmental regulation.
2. Establish a REE Oversight Commission
Create a multi-stakeholder body to review all REE-related agreements and ensure strategic alignment.
3. Launch Trilateral Dialogues
Initiate formal REE cooperation frameworks with Japan and Korea, focusing on technology, investment, and sustainability.
4. Engage the EU Strategically
Position Malaysia as a reliable REE partner for Europe by aligning with CRMA standards and offering supply chain alternatives.
5. Balance China Relations Transparently
Maintain open and rules-based engagement with China, ensuring that all REE projects meet national and international norms.
Malaysia’s Moment of Strategic Clarity
Malaysia stands at a rare inflection point. The convergence of global REE realignment, trade tensions, and strategic partnerships offers both peril and promise. By adopting a principled, transparent, and forward-looking approach, Malaysia can transform its REE sector into a pillar of national resilience and regional leadership.
This is not merely an economic opportunity—it is a test of Malaysia’s strategic maturity. The choices made today will shape the nation’s role in the global order for decades to come.
The views expressed here are entirely those of Dr Mohd Safar Hasim, a Council Member of the Malaysian Press Institute (MPI)
WE