Trump trade deal may present geopolitical challenges for Indonesia

The Star

2 days ago

JAKARTA: A celebratory and hopeful tone has been raised over the United States' decision to lower Indonesia's trade tariff to 19 per cent, but analysts have warned that the country may still face tricky situations ahead as nonaligned Jakarta works to rebalance ties with other key economic partners.
Indonesia's ambition to be less reliant on volatile superpowers could be challenged by its new obligation to purchase more American goods, observers have added, who also warned that the decision to significantly lower trade barriers for Washington may ruffle feathers among other key partners if not managed properly.
Countries around the world are wrapping up their trade negotiations with Trump ahead of his Aug 1 deadline for enforcing his so-called 'reciprocal tariff' policy. Some have finalised the trade agreement in the past weeks, including the European Union, the United Kingdom, Japan and Vietnam.
On July 15, US President Donald Trump announced a 19-percent tariff for Indonesia, significantly below the 32 per cent level he threatened earlier.
As part of the deal, Trump added that Indonesia agreed to purchase US$15 billion in oil and gas, $4.5 billion in agricultural products and 50 Boeing jets
Centre for Strategic and International Studies (CSIS) economist Dandy Rafitrandi suggested that the geopolitical repercussions have already appeared.
'I think, [...] we can already tell that the [deal] carries quite a heavy weight because of its non-optional nature and other consequences,' he told The Jakarta Post on Wednesday.
Indonesia was granted a lower levy at 19 per cent following what Indonesian negotiators described as an 'extraordinary struggle' to reach a fairer deal with Trump.
The 19-per cent rate, which is the lowest Washington has extended to any country in Sout-East Asia so far, may come at a cost, as Indonesia is required to commit to major US purchases and be willing to remove all nontariff barriers for US imports to grant further ease of access for American companies.
Included in the list of nontariff barriers to be removed are import restrictions, licensing requirements on US remanufactured goods or parts and local content requirements.
The government has so far welcomed the deal with a positive tone, with president Prabowo Subianto affirming his commitment to usher in a 'new era of mutual benefit between two great nations'.
The Office of the Coordinating Economic Minister also hailed the deal as a 'huge win for Indonesia's labour-intensive industries', calling it a 'strategic achievement', as quoted in a statement issued earlier this month.
But questions started to emerge over how Indonesia plans to fulfill its pledge to purchase more US goods given its limited fiscal space and longstanding partnerships with several countries over certain commodities.
Concerns were also raised over Jakarta's nonaligned stance and growing ambition to deepen ties with alternative partners.
Indonesia's obligation to, for example, purchase 50 Boeing planes from the US may consolidate the latter's position as its key aircraft supplier and reduce future orders from alternative companies such as French aircraft manufacturer Airbus.
Provisions in the deal may make Indonesia more dependent on the US, making the agreement an obvious victory for Washington, according to international relations expert Ahmad Rizky M. Umar of Aberystwyth University.
'Indonesia has no choice but to buy these goods, which may cost more,' Ahmad said.
'This is also counterproductive to Jakarta's recent efforts to diversify its trading partners, including by finalizing the comprehensive economic partnership agreement with the EU [IEU-CEPA] earlier this month,' he went on to say, referring to the long-awaited deal with the EU to open wider market access. Read also: Ministry to rework local content rules in line with US trade deal
During its months-long negotiations with Washington, Indonesia, which has chosen to cooperate with the US, has at the same time intensified its efforts to strengthen its ties with alternative trading partners, seeking to buffer itself from the uncertainty of the US' increasingly unilateral trade moves.
President Prabowo has travelled to at least 14 countries across the Middle East, South-East Asia and Europe since Trump's tariff announcement in April, which observers say were efforts to intensify Jakarta's economic partnerships amid tariff uncertainties.
Yet, as Indonesia becomes increasingly reliant on the US for trade, its alternative partnerships could face challenges because of shifting constellations in economic ties.
CSIS economist Dandy compared the deal with Trump with the IEU-CEPA: 'It took the EU a decade to score a zero-tariff deal with Indonesia, while Trump took weeks.'
'We have also now relaxed local content requirements for US imports. Our other trade partners will also want the same perk, and it will be a challenge for Indonesia to keep everyone happy.' - The Jakarta Post/ANN