Indonesian exporters seek to split tariffs with US buyers to ensure demand

The Star

21-07-2025

JAKARTA: Indonesian exporters are looking to split the tariff load with their buyers in the United States to maintain a competitive price, the success of which economists say ultimately rests on how high the import duties imposed on other countries get since pressing down cost to maintain a margin is easier said than done.
Indonesian Exporters Association chairman Benny Soetrisno said the outcome of the government's negotiations with Washington, which resulted in a reduced tariff of 19 per cent for Indonesia, down from the originally threatened 32 per cent, appeared to be the best possible deal.
However, he acknowledged that export adjustments would still be necessary. 'While the tariff remains ineffective, we are negotiating burden-sharing with our buyers,' Benny told The Jakarta Post on Friday (July 18), adding that US importers would likely abide since they 'do not rely on just one source to maintain supply security'.
He noted that estimates for the burden-sharing arrangement would depend on how much of the price increase US consumers could absorb, something that 'will take time' to determine. Once that figure becomes clear, Indonesian exporters and their US counterparts will be able to decide how to split the tariff burden to remain price-competitive.
BCA chief economist David Sumual told the Post on Friday that a similar burden-sharing scheme had been adopted during the first term of US President Donald Trump from 2017 to 2021. 'The name of the game was to strike a balance between passing on as much of the burden as possible to US consumers while maintaining a competitive price,' David explained. 'Otherwise, US importers might turn to suppliers from other countries.'
He added that, ultimately, the competitiveness of each product would hinge on the tariffs imposed on rival exporters such as Malaysia for crude palm oil (CPO), or China, Bangladesh and Pakistan in the case of textile products.
Trump sent letters on July 7 to inform countries, including those in South-East Asia, of their latest tariff rates: Malaysia received a slightly increased rate of 25 per cent; Cambodia, a reduced rate of 36 per cent; both Laos and Myanmar saw their rates reduced to 40 per cent; while Thailand's rate remained unchanged at 36 per cent. Vietnam, meanwhile, secured a deal with the US that resulted in a 20 per cent tariff rate, a significant cut from the previous 46 per cent.
The rate secured by Jakarta is currently the lowest in the region, excluding Singapore, which is subject only to the baseline ten per cent tariff. However, businesses and analysts have suggested that the situation could change again before the August 1 deadline.
Shinta Kamdani, chairwoman of the Indonesian Employers Association (Apindo), warned that Indonesia's competitors are still in negotiations with the White House. 'Therefore, we have to closely monitor our competitors' final positions, as these could reshape the region's competitive landscape in the near future,' Shinta said to the Post on Friday.
She added that the outcome of the negotiations must be accompanied by a comprehensive domestic overhaul, one that ensures business certainty and ease, logistics and energy efficiency, as well as quality regulations and infrastructure that support industrial growth. Shinta emphasised that structural reform in labor-intensive industries is crucial, given that many of Indonesia's main exporters to the US market fall into that category.
Susiwijono Moegiarso, the secretary at the Office of the Coordinating Economy Minister, said on Friday that Jakarta and Washington were still negotiating the finer points of the deal. He confirmed that the newly agreed 19 per cent tariff would apply on top of existing sectoral duties.
Indonesia has requested exemptions for key commodities, including cocoa, rubber, crude palm oil, coffee and nickel. In return, he added, the US will be granted an exemption from Indonesia's 'local content' rules, which require manufacturers to use locally made components in their products.
Permata Bank chief economist Josua Pardede told the Post on Friday that, to remain competitive in the US market, Indonesian exporters must lower the base price of their products, 'which can only be achieved if they can significantly reduce production costs or improve efficiency across the production and distribution chain.'
However, he noted that the scope for cost reduction in several of Indonesia's key export industries to the US, such as textiles, footwear, garments and electronics, is relatively limited. Challenging cost components include raw materials, labour, energy and logistics.
'If these industries are unable to cut production costs or substantially boost efficiency in the short term, the 19 per cent tariff will still hurt Indonesia's export competitiveness in the US,' Josua said. 'As a result, there's a risk that buyers may turn to competitor countries.'
He added that US buyers' willingness to share the tariff burden depends on several commercial factors, such as their reliance on Indonesian products and their ability to source alternatives from other countries.
'If Indonesia's products have unique characteristics and are not easily replaced on short notice, buyers are more likely to share the additional burden,' Josua said. 'But if the products can be easily substituted through other suppliers, importers will likely reject the idea of burden-sharing.' - The Jakarta Post/ANN