Will Indonesia regret its trade deal with Trump?

Bangkok Post

22-07-2025

Be careful what you wish for, lest it come true. That ancient proverb comes to mind when considering the eagerness of America's trade partners around the world to negotiate deals with US President Donald Trump's administration. Four countries already have, with Indonesia the latest to do so -- and possibly the first to regret it.
The United States has announced a complex, tiered tariff regime, including a 25% tariff on labour-intensive goods such as textiles and footwear, a 40% tariff on goods suspected of being "transshipped" or having content of Chinese origin, and a 50% tariff on so-called "strategic sectors", including aluminium, copper, semiconductors, and pharmaceuticals. An additional 10% levy applies to exports from Brics countries (including Indonesia). Countries might also face anti-dumping duties, which are often steep, politically driven, and inconsistently applied.
While these measures hurt US importers and consumers the most, they also significantly heighten uncertainty for exporters. By guaranteeing that Indonesia will not face tariffs exceeding 19% on its exports to the US through 2029, its new agreement with the US seems to mitigate this uncertainty, providing a level of protection against Mr Trump's tariff escalations. Indonesia can now rest assured that it will not face the kinds of extreme tariffs to which China has been subjected.
Indonesia's government argues that such a deal was essential because even though the US accounts for only 9.9% of Indonesia's total exports, the trade relationship is disproportionately important. Indonesian exports to the US -- including apparel, footwear, furniture, rubber products, and integrated circuits -- are labour-intensive, they note, and thus support a substantial number of jobs.
But these sectors may remain vulnerable to higher tariffs. As it stands, it is not clear whether the 19% cap applies to all Indonesian exports, or if some products -- particularly those containing Chinese inputs -- could still be subject to steeper duties. In any case, 19% tariffs are very burdensome, and Indonesia has also agreed to impose no tariffs on US goods. At best, the deal reduces losses; it does not deliver gains.
Moreover, to secure this dubious victory, Indonesia reportedly agreed to purchase 50 Boeing aircraft and commit to importing US$15 billion (484.8 billion baht) worth of US energy products (nearly 40% of Indonesia's total energy imports) and $4.5 billion worth of American agricultural products. But many important questions remain unanswered. How will these purchases be financed, and on what terms? What are the specifications, unit costs, and delivery timelines? Who will oversee procurement, and how will transparency be ensured?
Most importantly, if these exchanges are merely political gestures, they could turn out to be economically damaging. The use of jets from Boeing, which has faced a string of quality and safety scandals in recent years, could create considerable risks for Indonesia's airlines. And imports of US agricultural goods risk undercutting local farmers and breaching commitments to the Association of Southeast Asian Nations, as well as other trade agreements.
The deal might affect Indonesia's trade relationships in other ways. Indonesia has concluded comprehensive trade agreements with several major partners, including Australia, China, India, Japan, New Zealand, and South Korea. It is close to finalising one with the European Union, and it recently launched negotiations with the United Arab Emirates. If US firms are granted preferential treatment and zero-tariff market access, these partners might question Indonesia's commitment to fair competition -- or demand comparable terms.
Beyond trade, the agreement risks eroding Indonesia's carefully maintained strategic neutrality. Indonesia has long sought to balance its relationships with the US and China, but this deal could be seen as a lurch towards the US, exposing the country to escalating pressure to choose a side.
As Indonesia becomes increasingly politically entangled with one giant -- with far-reaching economic and strategic consequences -- it is at risk of becoming economically dependent on the other. Over the past decade, Indonesia's trade with China has more than doubled, reflecting deepening economic ties. While Indonesia exports mostly commodities and processed metals to China -- especially nickel, iron and steel, mineral fuels, and vegetable oils -- it imports high-value machinery, electrical equipment, vehicles, and plastics from the country.
In the face of challenging trade relations with the world's two mightiest powers, Indonesia's government deserves credit for seeking trade assurances. But the deal that it secured with the US lacks clarity, transparency, mutuality, and strategic vision. As a result, it may turn out to be largely symbolic, bringing only a slight reduction in short-term costs. In the long term, it might prove economically and even geopolitically damaging.
Three urgent steps can help prevent this outcome. First, Indonesia's government must demand full clarity from the US on the 19% tariff cap: are all its exports shielded from Trump's sector-specific classifications, or is the real cost of the deal hidden in the fine print? Second, the authorities should publish the full details of their procurement commitments, particularly the purchase of Boeing aircraft and US agricultural and energy products, so that these commitments' financial implications and strategic value can be assessed.
Finally, Indonesia must reaffirm a long-term trade strategy anchored in diversification, rules-based agreements, and regional leadership. Above all, it needs a strategy that avoids excessive dependence on any single partner and preserves its autonomy in an increasingly polarised global economy. Only then can Indonesia ensure that a handshake in Washington does not become a handcuff at home. ©2025 Project Syndicate