How Trump Tariffs Affect Indonesia's Exports and Macroeconomic Conditions?

1.   How Will Trump's Tariffs Affect Indonesia's Exports and Macroeconomic Conditions?

2.   What are Indonesia's exports to the US and the impact of Trump's tariffs?

3.   What impact will Trump's tariffs have on the rupiah exchange rate, gold prices, and the capital market?

4. How do Trump's tariffs affect Indonesia's macroeconomic conditions?

5.    How does the Indonesian government plan to address Trump's tariffs?

The United States government will impose a reciprocal tariff of 32 percent on Indonesian products starting April 9, in addition to the base tariff of 10 percent that has been in effect since April 5. What will be the impact on Indonesia's exports and macroeconomic conditions?

The reciprocal tariffs to be imposed by the President of the United States (US), Donald Trump, are expected to have a significant impact on Indonesia as its trading partner. Among the list of countries affected by this policy, Indonesia ranks eighth, with tariffs imposed reaching 32 percent.

The 32 percent rate is higher than several other countries, such as South Africa (30 percent), India (26 percent), and Brazil (10 percent), but lower compared to some neighboring countries in Southeast Asia, such as Cambodia (49 percent), Laos (48 percent), and Vietnam (46 percent).

These Trump tariffs are intended to protect U.S. industries by making imported goods more expensive, thereby encouraging domestic consumption of locally produced products. However, for exporting countries like Indonesia, this action poses challenges to the trade balance and economic stability.

This reciprocal tariff is expected to further hit Indonesia's labor-intensive sectors, which have long been relatively dependent on the U.S. market. Consequently, it is highly likely to also affect national export performance and job absorption. A wave of layoffs or terminations of employment and economic slowdown looms as an imminent threat.

Referring to data from The United Nations Conference on Trade and Development (UNCTAD) Trade Analysis Information System (TRAINS), there are numerous Indonesian goods that have been benefiting from low tariffs. As many as 3,834 Indonesian products even enjoy a 0 percent tariff to the US.

These products are distributed across several categories grouped based on the 2-digit HS code. Their fate is now at risk as the 0 percent tariff may potentially be removed and replaced with a new tariff. This means thousands of goods will become more expensive in the U.S., thereby diminishing their competitiveness.

In 2024, Indonesia's exports to the US reached 26.4 billion US dollars, accounting for 9.96 percent of the total national exports. The manufacturing, textile, electronics, and agricultural sectors served as the main pillars of exports to the US. With the US fiscal regulations, several key national export commodities will face significant obstacles.

The Central Statistics Agency (BPS) noted that there are at least 10 leading Indonesian non-oil and gas commodities exported to the US until February 2025. These commodities include electrical machinery and equipment, clothing and accessories (knitting) and footwear.

Of the 10 main Indonesian export commodities to the US, there are three products from the labor-intensive business sector that are expected to be hit. The three commodities are clothing and accessories - knitted (HS 61), clothing and accessories - non-knitted (HS 62), and furniture, furnishings, and furnishings (HS94). Overall, the export value of these three commodities to the US will reach 6.0 billion US dollars in 2024.

Throughout the 2020-2024 period, the United States absorbed more than half of the total exports of the three products from Indonesia that were sent worldwide. The value during the 2020-2024 period reached 30.4 billion US dollars. For clothing and accessories including knitwear, for example, the absorption of the American market reached 60.5 percent or 12.2 billion US dollars during the past five years.

Meanwhile, the US absorption capacity for non-knitted clothing and accessories from Indonesia reached 10.7 billion US dollars or 50.5 percent of Indonesia's total exports to the world throughout the 2020-2024 period.

Likewise with furniture, furnishings, and furnishings commodities, America absorbs 58.2 percent or around 7.5 billion US dollars. Footwear exports to the US reached 2.39 billion US dollars in 2024. Furthermore, for agricultural exports worth 4.25 billion US dollars, especially rubber, palm oil, and coffee.

Other products are processed products from meat, fish, crustaceans and molluscs. Throughout 2020-2024, the American market absorbed 4.3 billion US dollars or 60.2 percent of Indonesia's total exports for these commodities.

However, of the 10 Indonesian export commodities to the US, the largest export to the US is still the commodity of electrical machinery and equipment and its parts (HS 85). Its value reaches 4.18 billion US dollars in 2024 or 14.7 billion US dollars for the period 2020-2024. However, of Indonesia's total exports to the world for these commodities, the average absorption capacity of the American market is only 22.6 percent.

Trump's tariff policy has the potential to greatly affect the fate of millions of domestic workers. The textile sector is recorded to employ up to 3.98 million people in 2025. Next, the furniture industry employs more than 962,000 workers, both in small, medium, and large industries in 2023.

When a 32 percent reciprocal tariff is imposed on Indonesian commodities, it will linearly reduce export competitiveness drastically, especially in labor-intensive sectors such as textiles, furniture, and footwear. This estimate considers the direct and indirect impacts of the tariff on Indonesia.

The direct impact is that exports of various Indonesian commodities to the US will decrease. This is because these products depend on competitive prices in the US market. Tariffs as high as 32 percent will increase selling prices, and encourage buyers to turn to other countries.

Meanwhile, the indirect impact, when exports of Indonesia's trading partner countries to the US fall due to US tariff policies, Indonesia's exports to those countries will also fall. For example, when China's exports to the US fall, Indonesia's exports to China also have the potential to fall. This is because China will likely also reduce its demand for foreign products and optimize its domestic industry and domestic market.

The decline in exports due to direct and indirect impacts will cause a slowdown in production in Indonesia, thereby increasing the risk of mass layoffs domestically.

Trump's reciprocal tariffs on Indonesia and hundreds of other countries have not only affected exports. The rupiah exchange rate against the US dollar, gold prices, and the stock market have also been affected.

Since Trump's tariffs were announced, the US dollar exchange rate against the rupiah has been under downward pressure. It has even reached levels reminiscent of previous financial crises.

The US dollar exchange rate against the rupiah had penetrated Rp17,217 on Monday (7/4) at around 09.15 WIB. However, the position only lasted briefly and at 14.30 it was perched at the level of Rp16,799.5. This figure rose 147 points or 0.88 percent from its opening.

The current rupiah exchange rate has exceeded its weakest point in history, the level of the 1998 economic crisis when the rupiah plunged to Rp16,800 per US dollar. This depreciation was caused by concerns over declining export revenues and the broader implications of a potential global trade war.

This volatility could create uncertainty for Indonesian businesses, affecting their ability to plan and invest. In addition, the rupiah depreciation will ultimately burden domestic private companies. Especially for those with foreign currency debt above 50 percent.

Bank Indonesia data recorded that Indonesia's Foreign Debt (ULN) consisting of government and private debt in January 2025 was recorded at 427.5 billion US dollars. This value is equivalent to Rp7,081 trillion assuming an exchange rate of Rp16,566 per dollar.

Meanwhile, private ULN was recorded at 194.4 billion US dollars or around Rp3,200 trillion. The increasing debt pressure due to the weakening rupiah has made it possible for companies to carry out efficiency.

Trump's tariff policy was also followed by a decline in world gold prices. Quoting the Goldprice page, the world gold price which was around 3,120 US dollars per troy ounce slowly fell after the announcement of the crucial US trade policy targeting more than 180 countries in the world.

On Monday (7/4/2025), the world gold price fell to the level of 3,024 US dollars per troy ounce or corrected by around 3 percent from the previous week. This decline was faster than the increase in the world gold price in the last month which was 144 points or reached 5 percent.

Domestically, the price of gold from PT Aneka Tambang (Antam) Persero Tbk has also adjusted. Today, the price of gold per gram has been cut by IDR 23,000 compared to the previous day, from IDR 1.781 million to IDR 1.758 million per gram. Compared to Thursday (3/4/2025), the price of one gram of Antam gold has fallen 4.2 percent until Monday.

Meanwhile, the Jakarta Composite Index (JCI) also experienced pressure, with a significant decline. Investor sentiment was also negatively affected, leading to capital outflows and increased volatility in the stock market.

Even facing the reopening of the stock market after a long holiday, Tuesday (8/4/2025), the Indonesia Stock Exchange changed the provisions for implementing the temporary suspension of securities trading or trading halt on the exchange and reduced the percentage of the minimum limit for stock price declines or lower auto rejection or ARB.

Not only in Indonesia, the global stock exchange is still dominated by corrections or declines throughout Monday (7/4/2025). Since March 27, the global stock price index has experienced a decline and price fluctuations of between 5-11 percent.

The United States stock exchange lost a valuation equivalent to Indonesia's gross domestic product for two years. At the close of trading on Thursday (3/4/2025) evening New York time or Friday morning WIB, all major US stock exchange indices were in the red. The S&P 500, Dow 30, and Nasdaq plunged 4.84 percent; 3.98 percent; and 5.97 percent respectively. Meanwhile, the Nikkei-225 Index on the Tokyo Stock Exchange, Japan, closed down 7.83 percent.

Amidst these conditions, Trump's tariffs could have broader economic consequences for Indonesia. If exports to the US are hit, the chain of impacts could be long. Starting from the domestic manufacturing industry, the rupiah exchange rate, to global investor confidence in Indonesia.

In addition to the direct impact on trade and capital markets, rising export costs could cause the price of imported goods in the US to rise, potentially reducing demand for Indonesian products. Domestically, a weakening rupiah against the US dollar could make imported goods more expensive, contributing to inflation.

Tariffs can also create an element of uncertainty that could deter foreign direct investment, as investors may take a wait-and-see approach given the escalating trade tensions. This is because if the US economy slows down due to the widening trade war, global investors are likely to pull their funds from developing countries such as Indonesia. Investors tend to keep their money in countries that tend to have stable economies or in developed countries.

Under these conditions, Indonesia could experience a decline in foreign exchange earnings and weakening investor confidence. In addition, such a move could burden the country's trade balance and slow overall economic growth.

While Indonesia has shown resilience during past global trade tensions, the 32 percent tariff could ultimately increase pressure on the country's fiscal and monetary policy framework.

In facing tariffs from the United States (US), Indonesia has not taken the path of retaliation but has chosen the path of diplomacy, both bilateral and multilateral, including with other ASEAN countries, in order to avoid greater adverse impacts on the domestic economy.

Coordinating Minister for Economic Affairs Airlangga Hartarto said Indonesia would pursue diplomacy and negotiation to find a mutually beneficial solution after Trump announced sweeping global tariffs.

Airlangga stressed that Indonesia's approach is rooted in efforts to protect long-term bilateral trade relations and maintain the investment climate and overall economic stability.

In addition, the Indonesian government will gather input from business actors to help formulate strategies to address US tariffs, and will seek ways to increase trade with European countries as an alternative to the US and China.

President Prabowo Subianto has assigned Coordinating Minister for Economic Affairs Airlangga Hartarto, Finance Minister Sri Mulyani Indrawati, and Foreign Minister Sugiono to the United States to negotiate reciprocal tariffs to be imposed by US President Donald Trump. (LITBANGKOMPAS)