What are Trump Tariffs and How Will They Affect the Indonesian Economy?

1. When will US President Donald Trump impose import tariffs?
2. What are rates and how do they work?
3. Why is President Trump using tariffs?
4. What are the reciprocal tariffs that Trump announced?
5. What is the Indonesia-US trade balance like?
6. How will Trump's tariffs affect Indonesia's economy?

The global trade war enters a new chapter after the President of the United States (US), Donald Trump, announced broad new tariffs on goods imported from around the world on Wednesday, April 2, 2025. Trump claimed that a base tariff of 10 percent on all countries, along with higher tariffs for individual countries, would boost the US economy and protect jobs.

Although President Donald Trump has implemented tariff policies for several countries since the beginning of his administration, for many, the announcement Trump referred to as "Liberation Day" is nothing more than new pressure. This policy is feared to burden business actors worldwide and trigger uncertainties that could disrupt the global economy.

Indonesia has become one of the countries affected by the new tariff policy. Among the list of 180 countries subject to import duties, Indonesia is imposed an import tariff of 32 percent by the United States. Indonesia ranks eighth among the countries receiving the highest tariffs.

The White House website announced that the effective date of Trump's tariffs will be divided into two phases. In the first phase, a 10 percent tariff for all countries will take effect starting Saturday, April 5, 2025, at 12:01 AM U.S. time or Eastern Daylight Time (EDT).

That time coincides with Saturday, April 5, 2025, at 11:01 AM Western Indonesian Time (WIB) in Indonesia. After that, the special rates designated for several countries, including Indonesia, will take effect starting Wednesday, April 9, 2025, at 11:01 AM WIB.

A tariff is a form of tax imposed on imports from other countries. The tariff is collected at customs and paid by companies or individuals who import goods. In various cases, import tariffs are also referred to as import duties, customs duties, or import taxes.

Typically, a tariff is a percentage of the value of a product. For example, a 25 percent tariff on a product priced at 10 US dollars would mean an additional cost of 2.50 US dollars.

Companies that bring foreign goods into the country must pay taxes to the government. Companies may choose to pass on some or all of the costs to customers, or they may decide to import fewer foreign goods.

According to the Tax Foundation, a nonpartisan tax policy nonprofit, economic theory generally suggests that higher trade barriers raise consumer prices and negatively impact economic output and income.

Economists argue that tariffs are necessary to generate more demand for domestic manufacturers, even though they are also part of a global supply chain that could be affected by tariffs.

Tariffs are intended to increase state revenue and protect domestic industries from competition with foreign products. Tariffs can also function as a tool to control the entry of certain goods or as economic sanctions against other countries.

Import tariffs have a broad impact on a country's economy, both in terms of the price of goods, industrial competitiveness, trade relations, and public welfare.

Import tariffs can cause the price of imported goods to increase because the taxes imposed on the product will be passed on to consumers. As a result, consumers tend to switch to local products if they are available at a more competitive price.

Tariffs are a central part of President Donald Trump's economic vision. He argues that tariffs will encourage U.S. consumers to buy more American-made goods, boosting the country's economy and increasing tax collections.

Trump also wants to narrow the gap between the value of goods the US imports and the goods it exports to other countries, saying America is being taken advantage of by "cheaters" and "robbed" by foreigners. For example, the US is running a $213 billion trade deficit with the European Union (EU) by 2024, something Trump has called "atrocious."

The first tariffs Trump announced during his current presidency targeted the US's top trading partners, namely China, Mexico and Canada. Trump wants them to do more to stop the flow of migrants and drugs into the US.

Trump imposed a 10 percent tariff on Chinese goods, which was later doubled to 20 percent. He announced 25 percent tariffs on goods from Mexico and Canada, and 10 percent tariffs on Canadian energy imports, although these have been delayed and modified.

Trump has also imposed a 25 percent tariff on all steel and aluminum imports, and a 25 percent tariff on all foreign-made cars - with a 25 percent tariff on auto parts to come at a later date.

US President Donald Trump announced a higher reciprocal tariff policy for dozens of countries. Reporting from USA Today, Thursday (3/4/2025) reciprocal tariffs are tariffs that aim to address global trade imbalances by imposing higher tariffs on imported goods from trading partner countries.

This tariff is a form of 'revenge' against the tariff policies of other countries that are considered detrimental to the United States. This reciprocal tariff refers to the imposition of tariffs based on the amount of tariffs imposed by partner countries on United States products.

The policy stipulates that all countries will be subject to tariffs of at least 10 percent going forward, while countries deemed to have high barriers to US goods will face higher tariffs.

Trump announced that a minimum “base” tariff of 10 percent on all imports into the US would begin on April 5. This would affect countries including the UK, Argentina, Australia, Brazil and Saudi Arabia.

However, 57 countries considered the “worst offenders” will face higher tariffs, including China, which will be one of the hardest hit. Its import tariffs will be 34 percent. That is in addition to the existing 20 percent tariffs, bringing the total to 54 percent.

Cambodia is another country that will be hit with high tariffs of 49 percent, while Vietnam is not far behind with 46 percent. Imports from the European Union will be subject to tariffs of 20 percent. The higher tariffs will start on April 9.

The implementation of reciprocal tariffs of up to 32 percent for Indonesia is inseparable from the large US deficit to Indonesia. This is because data from the Ministry of Trade shows that the US-Indonesia trade deficit continues to increase in 2024. This increase in the deficit is what worries the US to the point of implementing a tariff increase policy against Indonesia.

Reporting from Satudata of the Ministry of Trade (Kemendag), Indonesia's trade surplus was 14.34 billion US dollars in 2024. This deficit places Indonesia in 15th place on the list of countries with the largest trade deficits for the US.

The US trade deficit has jumped 67 percent in the past five years from US$8.58 billion in 2019 to US$14.34 billion in 2024. The deficit even touched US$16.57 billion in 2022.

By commodity, Indonesia's surplus from the US was largest from electrical machinery and equipment worth US$4.18 billion last year. After that were clothing and clothing accessories worth US$2.84 billion and footwear worth US$2.39 billion.

Meanwhile, data from the United States Trade Representative (USTR) noted that the total value of trade between Indonesia and the US reached 38.3 billion US dollars throughout 2024 with US exports to Indonesia worth 10.2 billion US dollars and imports of 28.1 billion US dollars.

Larger imports from Indonesia will cause the US to post a trade deficit of US$17.9 billion in 2024. This deficit widens by 5.4 percent compared to 2023 which was at US$923 million.

President Donald Trump, through an official White House statement, revealed a number of reasons why Indonesia and several other countries are considered to have taken advantage of the US. Quoting the White House Fact Sheet published on the whitehouse.gov page on April 2, 2025, it was stated that for generations, countries have taken advantage of the United States, giving us higher tariffs.

The US government gave examples of several countries that they said had profited from Uncle Sam's country, including India, Brazil, and the European Union. Several Southeast Asian countries, such as Malaysia and Indonesia, were also mentioned as examples.

Indonesia, along with Brazil, is an example of a country that imposes higher import duties than the US for ethanol commodities. Brazil (18 percent) and Indonesia (30 percent) apply higher tariffs for ethanol than the United States (2.5 percent).

In addition, Trump also highlighted the Domestic Component Level (TKDN) policy, import licenses, and Foreign Exchange from Natural Resource Exports (DHE SDA) imposed by Indonesia. The White House Fact Sheet states that Indonesia maintains cross-commodity local content requirements for many sectors, a complex import licensing regime, and, starting this year, will require natural resource firms to keep export earnings domestically for transactions of $250,000 or more.

For Indonesia, the basic import tariff and reciprocal tariff policies set by the US government could have a significant impact on the economy, even the employment sector. This is because Indonesia's export market share to the US reaches 10.3 percent annually. This share is the second largest after Indonesia's exports to China.

The 32 percent tariff policy will specifically hit products that have been in close competition with locally produced US goods, such as electronics, machinery, chemicals, cosmetics, medicines, iron, steel, as well as agricultural and plantation products, such as palm oil, rubber, and fisheries.

The policy will also affect the quantity of exports from Indonesia to the US and negatively impact the volume of exports to other countries. High import tariffs will sharply increase export costs for Indonesian producers and exporters. This will ultimately reduce the competitiveness of Indonesian products in the US market.

Technology-based manufacturing sectors such as electronics, automotive, iron and steel are expected to experience major pressure, considering that these products are very sensitive to price increases due to high import tariffs.

So how does the Indonesian government respond to Trump's 32 percent tariff? Until now, the government is calculating the impact of this tariff on the affected sectors and the national economy as a whole. The National Economic Council (DEN) and cross-ministerial teams have been preparing since the beginning of the year with various strategies, including dialogue with the US Government. (Kompas Research and Development)