As the global trade scene changes, the United States has recently raised import tariffs on goods from several countries, aiming to protect its economy. While many nations see this as a threat, Indonesia is finding ways to benefit from the situation.
These US tariffs could open new doors for Indonesian businesses. With other countries facing higher export costs, Indonesia has a chance to step in and fill the gap. This article will explore how this challenge can become a massive opportunity for Indonesia's trade growth.
The United States has introduced new import tariffs targeting several countries as part of its trade policy changes. These tariffs are aimed at reducing the trade deficit and protecting local industries. As a result, imported goods from countries like China, Vietnam, and Indonesia now face higher fees when entering the US market.
Here's a breakdown of the key changes:
Although Indonesia is not seen as a top trade rival like China, it has recently made the list for higher reciprocal tariffs of 32%. This mainly applies to goods like textiles, electronics, and rubber-based products.
The US government isn't raising tariffs without a reason. These new policies are part of a larger economic and political strategy to protect national interests and reshape global trade.
The US wants to shield domestic manufacturers from being undercut by cheaper foreign products.
Countries with large trade surpluses with the US, including China, Vietnam, and Indonesia are being asked to pay more when exporting to America.
The US sees these tariffs as tools to force fairer trade deals and discourage unfair practices like subsidies or currency manipulation.
For sectors like steel, tech, and automotive, tariffs are seen to secure key supply chains from foreign control.
Tariffs give the US bargaining power in trade talks, especially with strategically essential or competitive countries.
While Indonesia wasn't initially a primary focus of US trade tensions, it now faces a steep 32% import tariff on some goods. Several factors have influenced this decision, including:
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Indonesia's exports to the US have grown significantly, especially in textiles, footwear, machinery, and electrical equipment. Since 2019, the country has consistently recorded a yearly trade surplus with the US, which has reached around US$16.8 billion by 2024. This has created a trade surplus that caught the US government's attention.
Many of Indonesia's exports, like rubber-based goods, furniture, and garments, are in the same category as goods from countries already facing tariffs, making it a target by association.
The US also points to non-tariff barriers in Indonesia, such as local content rules, strict import licenses, and a 2024 policy on earnings repatriation worth more than US$ 250,000. Officials argue these measures limit market access and disrupt fair trade.
With a growing manufacturing base and stronger exports, Indonesia is now seen as a rising trade competitor. As businesses shift operations from China due to high tariffs, Indonesia has emerged as a preferred alternative, boosting its global trade position.
The new US import tariffs don't impact all industries equally. Specific sectors in Indonesia are feeling more pressure than others, especially those that have shown strong growth in exports to the US market.
Indonesia's top export to the US is electronics, which generated around US$4.83 billion in 2024. However, key items like circuit boards, appliances, and components now face higher tariffs, which impact major production areas such as Batam and Java.
Footwear, Indonesia's second-largest export at US$2.64 billion, is now at risk. Higher costs may drive global buyers to move shoe and sandal production to cheaper alternatives like Vietnam or Bangladesh.
Apparel is a key Indonesian export, worth over US$2 billion in 2024 for knitwear and non-knit apparel. The 32% tariff makes these labor-intensive goods less competitive, pushing US buyers to cut orders or demand lower prices, further affecting profits and employment.
Since more than half of Indonesia's furniture exports go to the US, higher tariffs could reduce the global competitiveness of its wood products.
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While US tariffs pose short-term risks, they also open unexpected opportunities for Indonesia. With key competitors like China and Vietnam facing even higher tariffs or trade restrictions, Indonesia has a chance to strengthen its global trade position.
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Here's why the US import tariffs can benefit Indonesian business in the global trade landscape:
Indonesia has a strong chance to position itself as a regional supply chain hub, especially as US tariffs push companies to shift away from Vietnam, which now faces a 46% rate. This opens the door for Indonesia to attract redirected electronics, textiles, footwear, and furniture exports.
To seize this opportunity, the Indonesian government must improve licensing, upgrade infrastructure, and remove illegal fees to attract more investors.
With US importers moving away from high-cost Chinese goods, Indonesia is becoming a preferred supplier, especially in labor-intensive sectors like furniture, textiles, and electronics. This shift offers a valuable chance to expand exports and reduce reliance on regional markets by tapping into a wider global audience.
Rising global trade tensions have led multinational companies to adopt "China Plus One" strategies, shifting operations to countries like Indonesia. With its large market and improving infrastructure, Indonesia is attracting investment in electronics, EVs, and batteries. This trend brings in capital, jobs, and technology, boosting local industry growth.
With global trade becoming more uncertain, Indonesia is focusing on regional partnerships. Joining deals like the Regional Comprehensive Economic Partnership (RCEP) and strengthening ties with ASEAN helps the country rely less on the US and China while giving local businesses better access to nearby markets and lower trade costs.
As global prices rise, more Indonesian consumers choose local products, creating growth opportunities for domestic brands. To keep up with demand, local businesses are boosting quality, using sustainable materials, and improving branding to appeal to a wider range of buyers.
Read more: New Strategies for Accelerating Export Growth in Indonesia
The rise in US tariffs is more than a challenge; it's a strategic opportunity for Indonesia to boost its trade. With the proper focus on infrastructure and business support, Indonesia has the potential to position itself as a central hub in global supply chains.
Ascentium Indonesia (an Ascentium Company) offers end-to-end export solutions to help businesses tap into this opportunity. Our expert knowledge and seamless process ensure your smooth export journey so you can focus on scaling your business.