Indonesia reaches tariff deal with Donald Trump, but is it a win-win?

Australia Broadcast Center

2 days ago

Indonesia has become the second Asian nation to reach an agreement with the US, following President Donald Trump's launch of his tariff war on the world in April.
The US would pay no tariffs to Indonesia under the deal, while goods from the South-east Asian nation would face a 19 per cent levy.
Mr Trump had threatened Jakarta with a 32 per cent tariff rate, effective August 1, in a letter sent to Indonesian President Prabowo Subianto last week.
Indonesia runs a trade surplus with Washington, meaning the value of the goods it sells to the US (footwear, clothing, palm oil and rubber) brings in more money than what Indonesia pays to America for things such as oil and gas, electronic products, aircraft components, cereals and pharmaceuticals.
In 2024, the difference was close to $US18 billion in Indonesia's favour.
What's in the new deal?
In exchange for the tariff reduction, Mr Trump said Indonesia agreed to purchase 50 Boeing aircraft, primarily from the 777 series.
Furthermore, the Indonesian government plans to import US energy commodities valued at $US15 billion and US agricultural products worth $US4.5 billion.
"For the first time ever, our Ranchers, Farmers, and Fishermen will have Complete and Total Access to the Indonesian Market of over 280 million people... U.S. Exports to Indonesia will be Tariff and Non-Tariff Barrier Free," Mr Trump declared.
Donald Trump said he discussed the deal directly with Indonesia's President Prabowo Subianto. ( AP: Eraldo Peres )
Is it a good deal for Indonesia?
Mr Prabowo hailed a "new era of mutual benefit" while Indonesian Trade Minister Budi Santoso said the new tariff has the potential to attract significant investment to Indonesia.
He said this week: "We have two things that we can gain: investment inflow, and secondly, an increase in our exports."
However, Bhima Yudhistira, Executive Director of the Centre of Economic and Law Studies (Celios), told Tempo news website that the agreement disadvantages Indonesia.
"[It] actually carries a high risk for Indonesia's trade balance," he said, adding that while exports would benefit, there was a danger American imports could increase dramatically.
He said the agreement didn't compare well to Vietnam's deal signed on July 3.
'The difference between Indonesia's and Vietnam's tariffs is only 1 per cent, but Vietnam's manufacturing competitiveness is superior. In this case, we lose,' he told The South China Morning Post.
A win-win was unlikely
Poppy S Winanti, Professor of International Relations at Universitas Gadjah Mada in Yogyakarta, said the current deal on the surface seemed favourable, especially given the initial 32 per cent threat.
'At 19 per cent, Indonesia's tariffs are among the lowest in ASEAN and are competitive with main rivals in the US market, such as Vietnam," she said.
'However, for Indonesian producers, any additional tariffs above previous levels are already burdensome.
'Still, we should recognise that since negotiations began, a win-win outcome was unlikely.
'The Indonesian government's aim was probably to minimise damages, complemented by efforts to mitigate impacts in the short, medium, and long term. In the short term, support should go to domestic producers directly affected, while medium- and long-term strategies include strengthening regional cooperation through Regional Comprehensive Economic Partnership Agreement and expanding Indonesia's market to other countries.''
Barbies made in Indonesia displayed on a US supermarket shelf. ( AP: Andres Kudacki )
Professor Wisanti said it was essential to examine what opening the Indonesian market to more American products might mean.
'Including ... how to ensure these products are genuinely needed by the Indonesian industry and economy, or whether they are merely replacing or competing with locally produced goods and commodities,' she said.
'Even if markets are opened for US products, they can benefit the domestic economy if there is a genuine demand from local industries. However, if many of these products are similar to or could be produced locally, the impact could be negative.''
What next?
Monash Business School professor Robert Brooks said the US would now be keen to arrange as many of the deals as possible.
'If arrangements have been reached with Vietnam and Indonesia that will provide incentives to complete a broader range of deals across South-east Asia,' he said.
Indeed, Kevin Hassett, Mr Trump's top economic adviser, told Fox News that "a whole bunch" of additional trade deals would be announced very soon, but gave no details.
He said Trump's strict August 1 deadline had spurred a flurry of new activity, including talks with countries that had not previously been in touch.