High Stakes and Heavy Metals: The Geopolitics of the US–Indonesia Tariff Deal
As the U.S. sharpens its protectionist stance, Indonesia is scrambling to avert a 32% tariff by offering a USD 34bn investment-anchored trade package, including energy and agricultural imports, Boeing orders, and sovereign wealth fund commitments. This negotiation goes far beyond trade—it is a high-stakes geopolitical play involving critical minerals, global manufacturing shifts, and Indonesia’s bid to hedge between major powers while preserving policy autonomy. With an August 1 deadline looming, a deal is likely but will largely reflect Washington’s strategic terms—prioritising industrial reshoring and capital inflows over balanced reciprocity.
As Washington sharpens its trade arsenal ahead of the August 1 deadline, Indonesia has emerged as one of the last countries trying to dodge the full brunt of President Donald Trump’s sweeping tariff campaign. The Southeast Asian giant, currently facing a looming 32% tariff on its exports to the United States, is negotiating a broad investment-led trade package designed to underscore Jakarta’s geopolitical value and economic leverage.
The talks reflect more than a transactional tariff bargain. They sit at the intersection of global manufacturing realignments, mineral supply chains, and strategic hedging by non-aligned middle powers like Indonesia. The current impasse—despite Indonesia offering a USD 34bn package of US imports and investments—underscores just how complex it is to navigate bilateral deals under a US administration that is prioritising industrial reshoring and strategic trade leverage over conventional free trade ideals.
Indonesia’s Offer: Trade Offsets and Strategic Investment
Indonesia’s proposal is ambitious: it includes USD 15.5bn in fuel imports, USD 500mn worth of US wheat purchases, plans to acquire up to 75 Boeing aircraft, and potential investment by its sovereign wealth fund Danantara into US-based manufacturing ventures. Several Indonesian corporates, including Indorama and Indofood, are also engaging with US agribusiness giants like Cargill and ADM as part of a broader energy and agriculture import pact. Jakarta has further offered to reduce tariffs on key US exports—such as soybeans, petroleum gases, and aircraft—to near zero, provided it receives commensurate benefits on its own outbound shipments. These include electronics, textiles, footwear, and potentially processed minerals. The deal aims to tilt the trade balance back in Washington’s favour: in 2024, the US ran a goods trade deficit of USD 17.9bn with Indonesia.
A New Trade Playbook for Washington
President Trump’s negotiation tactics, however, signal a departure from previous norms. While early-stage proposals from Indonesia had been well received by US representatives, Trump’s recent letter to President Prabowo Subianto reiterated the 32% tariff threat and set a hard deadline of August 1. This has led to growing concerns in Jakarta that the US may be using uniform trade tools—like broad-based tariffs—to extract asymmetric concessions. Washington’s ask—that Indonesia invest directly in US manufacturing as a precondition to tariff relief—is consistent with its wider goal of bringing foreign capital into American industrial zones. This approach reflects the broader “America First” economic doctrine, where trade deals are increasingly tied to investment and supply-chain localisation, rather than reciprocal tariff cuts alone.
The Geopolitical Subtext: Resources, Rivalries, and Risk Hedging
At its core, the US–Indonesia negotiation is about more than tariffs—it is about where Indonesia aligns in a world fractured by great power competition. As the largest economy in ASEAN, Indonesia holds critical reserves of nickel, copper, bauxite, and rare earth minerals—inputs vital for EV batteries, electronics, and defence manufacturing. Jakarta has dangled access to these resources to secure preferential trade terms with both Washington and Beijing.
Its recent USD 27bn investment deals with Saudi Arabia—including a landmark 10GW renewable energy collaboration—also point to its strategy of diversifying strategic partnerships beyond traditional Western allies. For the US, securing a closer trade and investment partnership with Indonesia offers a chance to limit Chinese economic influence in the Indo-Pacific, especially in mineral extraction and processing.
The Road Ahead: Leverage or Stalemate?
With just days to go before the August 1 deadline, both sides are testing the limits of what can be traded—goods, market access, capital, and strategic goodwill. For Jakarta, avoiding a punitive 32% tariff is essential to maintain competitiveness against peers like Vietnam, which has already locked in a 20% rate (albeit with restrictions on transhipped goods). But unlike Hanoi, Jakarta brings more to the table: resource heft, strategic geography, and a still-open playbook on global alignment. Whether this translates into a deal that protects Indonesia’s trade interests without conceding too much sovereignty over policy space remains to be seen. But the negotiations may well serve as a blueprint for how other G20 middle powers bargain with the US in a world where tariffs are not just taxes—but tools of diplomacy, deterrence, and power projection. We anticipate a trade deal to materialise before the deadline, one skewed in favour of the US.