WNAM REPORT: President Prabowo Subianto recently announced a new trade tariff agreement between Indonesia and the US, which he lauded as “a new era of mutual benefit between the two great nations.”
On his Instagram account, Prabowo posted a photo of himself in a phone conversation with US President Donald Trump, hours after Trump announced his decision to lower tariffs on Indonesian goods entering the US from 32 percent to 19 percent.
In contrast, US exports to Indonesia will be exempt from tariff and non-tariff barriers, which was implied by Trump’s declaration that the agreement was a “landmark deal” that opens Indonesia’s entire market to the US.
Indonesia has also agreed to apply the 19 percent tariff to any transshipments from countries with higher existing tariffs, he added.
Trump further highlighted that Indonesia had committed to buying US$15 billion worth of US energy, importing US$4.5 billion in agricultural products, and procuring 50 Boeing aircraft.
While public debate continues over the fairness of this agreement, questions persist about the actual potential benefits Indonesia might gain.
Trade Minister Budi Santoso identified two advantages for Indonesia: greater opportunity to access the US market and new US investments in several sectors, including energy.
He emphasized that before the US announced tariff reductions, Indonesia must compete with other countries, which were subject to similar tariffs.
Compared to other ASEAN countries—Vietnam and the Philippines (both 20 percent), Malaysia and Brunei Darussalam (25 percent), Thailand and Cambodia (36 percent), Myanmar and Laos (40 percent)—Indonesia continues to have the lowest tariff bracket for exports to the US.
Therefore, this recent agreement must be optimally utilized, as Indonesia’s opportunity to export its products to the US will actually increase.
He noted that the government is currently identifying 10 key export products to the US, with the aim of identifying those with the greatest potential and ability to attract investment.
National Economic Council (DEN) Chairman Luhut Binsar Pandjaitan said the government’s success in securing the lower US tariff rate is part of strategic steps to strengthen supply chains, attract investment, and elevate Indonesia’s profile as a respected trading partner.
DEN had conducted economic simulations comparing the impact of 32-percent and 19-percent rates, indicating that the lower rate is more advantageous for the national economy.
With the 19-percent tariff, Indonesia’s gross domestic product is projected to grow by 0.5 percent, driven by an expected increase in investment as global companies relocate manufacturing facilities to Indonesia.
These facilities will likely focus on labor-intensive sectors such as textiles, garments, footwear, furniture, and fisheries.
Additionally, Indonesia’s workforce absorption rate could rise by 1.3 percent, which in turn would boost people’s welfare.
DEN views the tariff cut as momentum for Indonesia to accelerate its deregulation agenda and lower domestic logistics and production costs, according to Pandjaitan.
Bank Indonesia (BI) Governor Perry Warjiyo is optimistic that the newly announced reciprocal tariff agreement between Indonesia and the US will have a positive impact on financial markets, as it helps provide certainty for investors and businesses.
He noted that the deal could boost business sentiment among companies and financial sector players, including banks, as they plan future investment and financing decisions.
In general, Indonesia’s central bank welcomed the agreement, emphasizing that it should have a favorable effect on economic prospects, including growth, financial markets, monetary policy, and currency stability.
According to Warjiyo, the agreed 19 percent tariff on Indonesian goods entering the US represents a relatively balanced outcome.
Nevertheless, he stated that BI will conduct further in-depth analysis of the agreement’s impact not only on national economic growth and markets but also on Indonesia’s trade balance.
Warjiyo also projected that Indonesian exports, including shipments to the US, would remain resilient under the new terms.
Since the agreement is also expected to boost US imports into Indonesia, he is upbeat that these imports will be productive in nature and will stimulate investment as well as broader economic activity in Indonesia in the coming years.Despite having agreed on trade tariffs with the US, President Prabowo admitted to being dissatisfied with the outcome of the negotiations with Trump, describing them as “tough.”
Prabowo affirmed that he would only be satisfied if tariffs were reduced to zero percent—emphasizing Indonesia’s commitment to fight for equality and prevent trade discrimination.
As a result, dialogue and negotiations will continue to improve the trade balance between the two countries.
Currently, the government is seeking to negotiate a zero percent import tariff deal for key commodities with the US government, as there remains room for negotiation despite the announcement of a 19 percent reciprocal tariff.
The commodities Indonesia proposed for zero percent tariffs include crude palm oil, coffee, cocoa, and nickel, according to Secretary of the Coordinating Ministry for Economic Affairs Susiwijono Moegiarso.
He noted that the range of products being negotiated is quite extensive and highly competitive, including strategic commodities for the US market.
The specifics of the agreement will be included in a joint statement document, which will cover all aspects agreed upon by the two governments, such as reciprocal tariffs, non-tariff barriers, and commitments on bilateral trade and investment.
The negotiation towards zero percent tariffs must be conducted in a reciprocal and equitable manner. One party cannot simply lower its tariffs while the other party enjoys maximum benefits without reciprocating with incentives or providing equal market access.
In fact, trade agreements should not be viewed as a win for one party over the other, but rather, as a process for creating a new balance that fosters the growth of national economies in line with global developments.
In essence, tariffs serve as one of the country’s protection tools to allow domestic industries the space to grow and compete in the global market.
Amid these potential benefits, Indonesia needs to be wary of the threats that could impact the national economy from its trade agreement with the US.
Head of the Center for Macroeconomics and Finance at the Institute for Development of Economics and Finance (INDEF) M. Rizal Taufikurahman urged the Indonesian government to remain vigilant about potential medium- to long-term macroeconomic risks arising from the tariff agreement with the US.
Although the agreement provides opportunities and benefits for Indonesian exporters to remain competitive in the US market, he said, the risk of macroeconomic turmoil must be seriously anticipated.
According to Taufikurahman, the reduction of the US reciprocal tariff on Indonesian exports to 19 percent comes with its own set of challenges.
One challenge is Indonesia’s obligation to make large-scale purchases of US energy, which could put significant strain on Indonesia’s current account balance.
He emphasized that this arrangement reflects asymmetric trade, granting export access but potentially deepening Indonesia’s economic dependence on US goods and services.
Taufikurahman cautioned that if increases in exports of other commodities do not compensate for this, it could heighten the risk of a balance of payments (BOP) shock, especially if global energy prices fluctuate sharply.
He further highlighted that increasingly open market access for US products will also put pressure on local producers in the aviation, energy, and mining sectors.
As a precautionary measure, he suggested the government immediately intensify trade cooperation with other potential export markets, such as the EU, ASEAN, BRICS, and Middle East countries, to keep trade structures balanced.
Meanwhile, the Indonesian Young Entrepreneurs Association (HIPMI) indicated that the tariff agreement reached between Indonesia and the US signals that the bilateral trade is “entering an unbalanced negotiation phase.”
Secretary General of HIPMI’s central board Anggawira warned that Indonesia must be cautious not to be disadvantaged by the aggressive trade strategies of major powers.
He assessed that the trade agreement would still impact industries, including reducing export volumes to the US, disrupting production cost efficiency, and potentially causing job losses.
Especially for MSMEs and new exporters, the tariffs could create obstacles to upgrading and penetrating the global market.
Furthermore, products such as textiles, footwear, household electronics, and furniture are particularly vulnerable due to their already narrow profit margins.
Therefore, he outlined several strategies the government should pursue to maintain the competitiveness of national businesses.
First, the government needs to immediately develop a strategy to diversify export markets so that businesses are not solely dependent on the US market.
Second, export incentives and financing should be expanded for affected sectors, especially MSMEs.
Third, Indonesia must be bold enough to renegotiate fairer trade agreements, not just as a buyer of US energy products or aircraft, but also prioritize the principles of reciprocity and economic independence.
Fourth, the Indonesia-US tariff agreement could be leveraged as momentum to strengthen the domestic production ecosystem, enabling Indonesia to export not only raw materials but also high-value-added products.
