Indonesia plans to submit a list of preferred tariffs on US goods before the second round of trade negotiations with Washington later this month.

These talks are expected to conclude ahead of a July 3 deadline for reciprocal tariffs set under a policy from the previous US administration.

In 2024, the United States was Indonesia’s third-largest export market, with shipments valued at US$26.3 billion.

Economy minister Airlangga Hartarto said that Indonesia aims to expedite negotiations. The focus will be on tariffs, non-tariff barriers, digital trade, and economic security.

The US had previously imposed a 32% tariff on Indonesian goods, but this measure is currently on hold until July.

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🔗 Source: Reuters

🧠 Food for thought

1️⃣ Persistent trade imbalances shape decades of US-Indonesia economic relations

The current negotiations occur against a backdrop of long-standing trade imbalances that have grown more pronounced in recent years.

Indonesia’s trade surplus with the US reached US$16.8 billion in 2024, continuing a pattern that has made Indonesia consistently one of America’s larger deficit partners in Southeast Asia1.

This imbalance has deep structural roots, with Indonesia primarily exporting textiles (US$4.83 billion) and electronics (US$2.64 billion) while importing high-value items like aircraft and machinery2.

Despite the 1996 Trade and Investment Framework Agreement (TIFA) specifically designed to address trade barriers, economic interactions have remained limited relative to the size of both economies3.

The Trump administration’s focus on trade deficits represents the most aggressive US attempt to correct these imbalances, with Indonesia now facing potential 32% tariffs unless negotiations succeed before July 34.

2️⃣ Indonesia employs energy diplomacy as a strategic counterbalance

Indonesia’s proposal to increase US energy imports by $10 billion represents a diplomatic strategy that addresses both countries’ economic interests.

This approach allows Indonesia to reduce its trade surplus through increased purchases rather than decreased exports, potentially preserving jobs in export-dependent sectors where over 18,000 layoffs have already been reported in textiles alone2.

The energy focus is significant because it targets an area where the US has actively sought to expand exports, offering Indonesia negotiating leverage while also diversifying its own energy supply chains5.

Indonesia’s Finance Minister has calculated that US tariffs could reduce economic growth by 0.3-0.5 percentage points, making these negotiations economically crucial beyond just the affected export sectors6.

This energy-focused strategy exemplifies Indonesia’s preference for diplomatic engagement over retaliation, contrasting with the more confrontational approaches some other nations have taken when facing similar tariff threats4.

3️⃣ Tariff pressure accelerates Indonesia’s economic diversification strategy

The US tariff threat is functioning as what analysts call a “wake-up call” that’s accelerating Indonesia’s efforts to reduce dependence on traditional export markets2.

Indonesian officials are using this pressure to drive domestic economic reforms, enhance competitiveness, and strengthen trade relationships with alternative partners beyond the US7.

The government is specifically targeting under-tapped markets in Africa and South America while enhancing digital infrastructure to support micro, small and medium enterprises that contribute significantly to Indonesia’s GDP8.

This diversification strategy includes boosting regional economic integration through existing trade agreements, creating a buffer against future protectionist policies from any single trading partner9.

The structural reforms being considered include improving investment competitiveness and reducing Indonesia’s own non-tariff barriers, potentially creating longer-term economic benefits beyond just resolving the immediate tariff dispute4.

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