Indonesia's Strategy to Counter US Tariffs
Facing a potential 32% tariff from the US, Indonesia has launched a multi-pronged strategy to fortify trade relations and ease market access for American giants like Apple and Microsoft. The government plans to lower domestic content requirements and introduce fiscal incentives to attract US investment and balance the existing $17 billion trade surplus. These moves, combined with planned purchases of US LPG and technology for oil exploration, aim to secure a more favorable trade agreement during a critical 90-day negotiation window opened by a US tariff pause.
In response to the looming threat of a 32% tariff imposed by the US on Indonesian imports, the Indonesian government has unveiled a series of strategic measures to not only navigate through these challenging trade dynamics but also to fortify its economic ties with the US. As US President Donald Trump initiates a 90-day suspension of the new tariffs for all countries except China, Indonesia sees a critical window for negotiation.
Economic Minister Airlangga Hartarto highlighted the government's plan to ease non-tariff barriers that have long impeded the entry of US tech giants like Apple, Oracle, and Microsoft into the Indonesian market. A significant step includes the reduction of the TKDN (minimum domestic content requirement), specifically for the information and communication technology sector. This adjustment aims to facilitate smoother trade flows and open up opportunities for major US corporations.
In addition to these regulatory relaxations, the government is setting the stage for trade negotiations by proposing fiscal and non-fiscal incentives. These incentives are designed to create a more favourable trading environment and potentially stave off the harsh impacts of US tariffs. The strategic dialogue between the two nations is not just limited to easing market access. Indonesia's President Prabowo Subianto announced plans to purchase substantial quantities of liquified petroleum gas and other fuels from the US. This move is intended to counterbalance the existing US$ 17bn trade surplus that Indonesia holds over the US, creating a more equitable trade relationship.
Furthermore, the Indonesian government is counting on US investments to modernize and enhance the operational capacity of around 10,000 existing oil wells across the country. This initiative not only aims to boost domestic energy production but also to secure technological advancements from the US. Additionally, potential deals with Boeing for aircraft purchases and the import of US cotton are on the table, showcasing a diverse range of engagement beyond mere energy commodities.
Finance Minister Sri Mulyani Indrawati underscored the urgency of these negotiations, given the potential economic setback projected from the tariffs—a GDP growth reduction by 0.3 to 0.5 percentage points. However, with the temporary reprieve provided by the 90-day negotiation period, there is a hopeful outlook that Indonesia can implement effective strategies to mitigate the adverse effects of these tariffs. As part of a broader regional strategy, Indonesia also plans to strengthen ties within ASEAN to bolster economic resilience against external shocks like these tariffs. This collective regional effort aims to enhance intra-ASEAN trade and provide a unified front in navigating global trade tensions.