Indonesia is one of the countries affected by the latest US trade tariffs. The imposition of import tariffs from a number of countries, including 32% for Indonesian goods entering the United States (US), was announced by US President Donald Trump on Wednesday (2/4/2025) local time. INDEF economist Eisha Maghfiruha Rachbini explained that the implementation of tariffs on Indonesian export products to the US would have a direct impact. The tariffs will have a significant impact on Indonesia’s exports to the US, such as textiles, footwear, electronics, furniture, and agricultural and plantation products, such as palm oil, rubber, and fisheries.
“In theory, with the implementation of tariffs, there will be trade diversion from low-cost markets to high-cost markets. So that it will have an impact on high costs for exporters for superior commodities and slow production and employment,” said Eisha in her official statement, quoted Thursday (3/4/2025).
She also believes that the government needs to conduct trade negotiations with the US immediately in order to minimize the impact of tariffs on Indonesian export products to the US. Diplomatic negotiation power is very crucial in mitigating the impact of the trade war with the US.
“The government needs to optimize bilateral and multilateral trade agreements, CEPA, and initiate cooperation agreements with non-traditional countries to encourage exports of affected products, such as textiles, footwear, electronics, furniture, and agricultural and plantation products, such as palm oil, rubber, fisheries. So that exporters and affected industries can shift export markets,” he said.
Not only that, financial incentive policies, subsidies, and tax breaks also need to be implemented by the government to help businesses overcome increased costs and reduced demand due to the impact of tariffs and the US trade war.
In response to trade tariffs, the government of President Prabowo Subianto claims to have prepared a strategy to counter the impact of US President Donald Trump’s policy regarding import tariffs. According to the Deputy for Dissemination and Information Media of the Presidential Communications Office (PCO) Noudhy Valdryno, there are three “major breakthroughs” that have been made long ago to deal with the turmoil.
He said that these three policies synergize to keep Indonesia growing and developing even in a situation of global economic disruption. The three policies include:
1. Expansion of Trading Partners
Noudhy explained that Indonesia’s joining the BRICS economic alliance strengthens Indonesia’s position in international trade. According to him, Indonesia’s membership in BRICS strengthens various multilateral trade agreements. Indonesia has signed agreements such as the Regional Comprehensive Economic Partnership (RCEP) with 10 ASEAN countries and Australia, China, Japan, South Korea, and New Zealand, which covers 27% of global trade, as well as accession to the Organization for Economic Cooperation and Development (OECD) which covers 64% of global trade. Including several other trade agreements CP-TPP, IEU-CEPA, and I-EAEU CEPA.
2. Acceleration of Downstream Natural Resources
According to Noudhy, the Prabowo government prioritizes downstream policies. One successful example is the nickel commodity. In addition, Prabowo has also launched the Danantara Investment Management Agency which is claimed to accelerate the downstreaming of strategic Natural Resources.
“BPI Danantara will fund and manage downstream projects in key sectors such as minerals, coal, oil, natural gas, plantations, maritime, fisheries, and forestry,” he said.
3. Strengthening Domestic Consumption
According to Noudhy, the Free Nutritious Meal Program and the establishment of 80,000 red and white village cooperatives aim to increase domestic consumption and reduce dependence on imports, as well as strengthen the domestic economy. It is hoped that the program can boost household consumption which contributes 54% of Indonesia’s GDP.
“By strengthening international trade relations, optimizing the potential of natural resources, and increasing domestic consumption, President Prabowo has proven that Indonesia can continue to grow even in the midst of a global situation full of uncertainty,” said Noudhy.
April 3, 2025, CNBC Indonesia
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