Indonesia's trade strategy in Trump's tariff era

[WORLD] Indonesia, Southeast Asia's largest economy, finds itself in a challenging position as it seeks to navigate the complexities of U.S. trade policies under former President Donald Trump’s protectionist stance. With Trump’s administration imposing sweeping tariffs on numerous trading partners, Indonesia is exploring ways to strengthen its trade relationship with the United States. The question remains: does Indonesia possess the necessary "bargaining chips" to secure favorable terms and mitigate tariff threats?

Indonesia’s Trade Landscape with the U.S.

Indonesia has enjoyed a significant trade surplus with the United States, amounting to $16.8 billion in 2024. This surplus stems from $26.3 billion worth of Indonesian exports to the U.S., compared to $9.4 billion in American imports. Despite this favorable balance, Indonesia lacks a bilateral free-trade agreement (FTA) with Washington, which could be a critical tool for fostering stronger trade ties and protecting its exporters from potential tariff hikes.

Trade Minister Budi Santoso emphasized the importance of competitiveness in Indonesia’s approach to the U.S. market. “What’s important is that we have competitiveness … then we can compete with other countries. I think we won’t lose,” he stated, highlighting the need for Indonesia to position itself strategically against global competitors.

The Tariff Threat: A Double-Edged Sword

While Indonesia is somewhat insulated from Trump’s tariff policies—many of its exports are already subject to levies—the country remains vulnerable to future increases. Trump's administration has historically targeted countries with significant trade surpluses with the U.S., which places Indonesia in a precarious position.

The pursuit of an FTA is seen as a proactive measure to counter these risks. Such an agreement would not only reduce tariffs on Indonesian goods but also enhance access for its exporters to the lucrative American market. However, experts argue that securing an FTA will require Indonesia to bring substantial incentives to the negotiating table.

What Are Indonesia’s Bargaining Chips?

To successfully negotiate with the U.S., Indonesia must identify and leverage sectors where it holds competitive advantages or strategic importance. Some potential bargaining chips include:

Natural Resources: Indonesia is a major exporter of commodities such as palm oil, rubber, and minerals like nickel and coal. These resources are critical for various industries, including energy and manufacturing.

Manufacturing Base: The country has a growing manufacturing sector, producing goods like textiles, footwear, and electronics that are in demand globally.

Geopolitical Importance: As a key player in Southeast Asia, Indonesia holds strategic importance in regional stability and trade routes, which could be leveraged in negotiations.

However, analysts caution that these advantages may not be sufficient on their own. The U.S., under Trump’s "America First" policy, has demonstrated a preference for deals that heavily favor American interests.

Challenges in Securing an FTA

Negotiating an FTA with the U.S. presents several challenges for Indonesia:

Competing Interests: The U.S. may demand greater access to Indonesian markets for American goods and services, which could face resistance from local industries.

Regulatory Barriers: Differences in regulatory standards and practices could complicate negotiations.

Domestic Opposition: Any concessions made during negotiations could face pushback from Indonesian stakeholders concerned about protecting local industries.

Moreover, Trump’s administration has shown a tendency to use tariffs as leverage in trade negotiations, creating additional uncertainty for Indonesia.

Opportunities for Collaboration

Despite these challenges, there are opportunities for mutually beneficial collaboration between Indonesia and the U.S.:

Investment Opportunities: Encouraging American investment in Indonesian infrastructure and industries could create goodwill and strengthen economic ties.

Energy Cooperation: With its abundant natural resources, Indonesia could explore partnerships in renewable energy and other sectors aligned with U.S. interests.

Digital Economy: As both countries prioritize digital transformation, there is potential for collaboration in technology and innovation.

By aligning its priorities with those of the U.S., Indonesia can increase its chances of securing favorable terms.

The Role of Regional Dynamics

Indonesia's efforts to navigate Trump’s tariff threats must also be viewed within the broader context of regional dynamics. As part of Southeast Asia, Indonesia is a member of ASEAN (Association of Southeast Asian Nations), which has been actively pursuing trade agreements with major economies.

While ASEAN provides a platform for collective bargaining, individual member states like Indonesia often have unique priorities that require bilateral solutions. This dual approach—leveraging regional alliances while pursuing direct negotiations—could enhance Indonesia’s negotiating position.

Indonesia faces an uphill battle in navigating Trump’s tariff threats and securing an FTA with the United States. While it possesses certain bargaining chips—such as its natural resources, manufacturing base, and geopolitical significance—these alone may not be sufficient to overcome the challenges posed by Trump’s protectionist policies.

To succeed, Indonesia must adopt a strategic approach that balances domestic interests with international opportunities. By identifying areas of mutual benefit and aligning its priorities with those of the U.S., Indonesia can enhance its competitiveness and strengthen its position on the global stage.

As Trade Minister Budi Santoso aptly put it: “What’s important is that we have competitiveness … then we can compete with other countries.” This sentiment underscores the need for resilience and adaptability as Indonesia navigates the complexities of global trade under Trump-era policies.