Indonesia and U.S. Strike Trade Deal Amid Rising Global Tensions

Following several months of tense negotiation, Indonesia has confirmed the framework of a new trade agreement with the United States. The deal outlines a major tariff shift: American products will enter Indonesia without duties, while Indonesian exports to the U.S. will face a 19% tariff.

The announcement aligns with a broader push by the Trump administration to renegotiate trade terms globally. It follows threats made last week when Indonesia, along with other nations, received letters from President Trump warning of looming tariffs—up to 32%—if no agreement was reached by August 1. Despite positive progress in talks, Indonesian officials were reportedly caught off guard by the sudden escalation.

The arrangement includes Indonesia’s commitment to purchase Boeing aircraft, though most other provisions remain undisclosed. President Prabowo Subianto acknowledged that while the deal has been settled in principle, further discussions may be needed to adjust certain aspects, particularly the high U.S. tariff rate on Indonesian products. He expressed confidence in Indonesia’s economic resilience, suggesting the country will adapt regardless of external pressure.

Meanwhile, Airlangga Hartoto, Indonesia’s coordinating minister for economic affairs, had earlier warned that the proposed tariffs could endanger approximately 300,000 Indonesian jobs, especially in labor-intensive sectors like textiles and footwear. Despite the threats, he described the U.S. and Indonesia as natural trading allies and indicated that Jakarta is also pursuing other partnerships, including a deal with the European Union to eliminate tariffs on many goods.

This agreement marks the third such deal announced by President Trump in recent months, following similar pacts with the United Kingdom and Vietnam. In each case, the deals have been publicized via the president’s social media platforms, with few immediate details provided by the White House. While such announcements have calmed investor concerns about new tariffs, they’ve raised uncertainty about the depth and enforceability of the deals.

As with Vietnam, the Indonesian agreement reportedly includes provisions to combat transshipment—a practice where products from countries facing higher tariffs are rerouted through low-tariff nations to avoid penalties. This clause is part of a wider U.S. strategy to close loopholes that might allow Chinese goods to enter the American market indirectly.

Although Indonesia has seen an uptick in imports from China, analysts suggest it hasn’t been a major hub for rerouted Chinese exports. Factors such as Indonesia’s geographic spread—spanning thousands of islands—and its relatively less-developed industrial infrastructure, compared to regional peers like Vietnam, reduce its appeal as a transshipment route.

The U.S. efforts to reduce reliance on Chinese supply chains are proving complex for Southeast Asian nations, many of which, including Indonesia, rely heavily on trade with China. Previous deals like the one with Vietnam have already prompted warnings from Beijing, which has signaled it may retaliate against trade agreements that threaten its interests.

Looking ahead, the newly confirmed trade agreement between Indonesia and the United States signals a tentative step toward reshaping economic ties, but much remains uncertain. As the U.S. continues to pursue aggressive trade realignments aimed at reducing Chinese influence in global supply chains, Indonesia may face mounting pressure to choose sides or craft a delicate balance between its two largest trade partners.