What Impact Will Trump's Tariffs Have on the National Economy?

What did you learn from this article?

1. What is the impact of tariffs?
2. Is there any impact on the financial sector?
3. What about the footwear industry?
4. What is the government's response?

1. What impact will Trump's Tariffs have on the national economy in general?

Professor of International Economics at FEB UI and Deputy Chair of the National Economic Council, Mari Pangestu, stated in her opinion piece in Harian Kompas on Friday (4/4/2025) that Indonesia will face a 10 percent import duty starting April 5, like all other countries, and 32 percent on April 9.

The imposition of this tariff will have a significant impact on Indonesia's exports to the US, with key exports including electronic devices, textiles and textile products, footwear, shrimp, as well as wood products (furniture and crafts).

There is a sectoral import duty of 25 percent that has been and will be applied to automotive, steel and aluminum, semiconductors, copper products, wood and derivative products, as well as precious metals. These products are subject to sectoral import duties and not bilateral import duties related to specific countries.

The impact on Indonesia will be very pronounced because these sectors are very important for employment, shrimp farmers, and export growth, and the Indonesian economy. Some of our export products, such as apparel, shoes, and wood products, are highly dependent on the US market.

2. Is there any impact on the financial sector?

The tariff policy of the United States, which also targets Indonesia, has the potential to further pressure the rupiah exchange rate and the stock market. Although the domestic money and stock markets are still on holiday, the shock will be felt as soon as the markets reopen on April 8, 2025.

The President of the United States (US), Donald Trump, has announced a list of base tariffs and import duties for the US's trading partner countries at the White House, US, on Thursday morning (3/4/2025) Jakarta time. Indonesia was not exempt from this policy, being subjected to a 32 percent tariff.

A Professor from the Faculty of Economics and Management at IPB University and Paramadina University, Didin S. Damanhuri, opines that U.S. tariff policies not only cause global economic turmoil. The sentiment of imposing tariffs on Indonesia has the potential to pressure the rupiah exchange rate and the stock market.

"Just yesterday, the rupiah had already reached IDR 16,700 per US dollar. Now, especially with Indonesia being subjected to a 32 percent tariff, the sentiment worsens. Then, it will affect the IHSG (Composite Stock Price Index) directly, which already experienced a capital flight of 4.25 trillion rupiah yesterday," he said when contacted from Jakarta.

Didin explained that the U.S. tariff policy further exacerbates negative sentiment amid the weakening fundamental condition of Indonesia's economy. This is evident from the increase in foreign debt to approximately Rp 7,000 trillion in January 2025, as well as the State Budget deficit (APBN) amounting to 0.13 percent of the gross domestic product (GDP) in February 2025.

"With domestic sentiment alone, such as Danantara, the rupiah is already under considerable pressure. Now, with the combination of sentiment (U.S. tariffs) and its impact on the real sector, it could exceed Rp 17,000 per U.S. dollar in my opinion in the next few days," he stated.

3. What about the footwear industry?

The imposition of a 32 percent import duty rate by United States President Donald Trump on Indonesia will impact the footwear industry. The United States has long been a major market for the footwear industry, which will result in a decline in orders and price adjustments that will take at least six months.

Regarding the tariff imposition, the Chairman of the Indonesian Footwear Association (Aprisindo), Eddy Widjanarko, stated that the tariff imposition on Indonesia would impact the footwear industry. The 32 percent tariff will reduce orders and require price adjustments, which will take a minimum of six months.

"This means that in the next six months, PO (purchasing orders) will shrink and could result in exports to America which could result in reduced production and possibly layoffs," Eddy told Kompas, Thursday (3/4/2025).

After the tariff was set, Eddy continued, Indonesia must be more careful in choosing new markets in the future. Several potential markets that can be targeted are Europe and China. However, the challenge is that purchasing power in Europe is declining, while China will also help its domestic industry first.

4. What is the government's response?

Secretary of the Coordinating Ministry for Economic Affairs Susiwijono Moegiarso, Thursday (3/4/2025) evening, said that the imposition of reciprocal tariffs would have a significant impact on the competitiveness of Indonesian export products in the US market.

So far, Indonesia's main export products in the US market include electronics, textiles and textile products, footwear, palm oil, rubber, furniture, shrimp and marine fishery products.

"We will soon calculate the impact of the imposition of US reciprocal tariffs on these commodities. We will also take strategic steps to mitigate the negative impact on the Indonesian national economy," he said in a press release in Jakarta.

Susiwijono explained that since early 2025, the Government of Indonesia has prepared various strategies and measures to address the implementation of new tariffs by the United States. The Government of Indonesia has also negotiated with the United States Government.

The inter-ministerial and institutional team, Indonesia's representatives in the US, and national business actors have been coordinating intensively to address the US reciprocal tariffs. In addition, the Indonesian Government will continue to communicate with the US Government at various levels.

"We will soon send a high-level delegation to Washington DC to negotiate directly with the US Government. Indonesia has also communicated with Malaysia as the holder of ASEAN Chair to take joint steps considering that all 10 ASEAN countries are affected by the imposition of US reciprocal tariffs," he said.