Increased Imports and Tax Reform Become RI's "Strategy" to Block Trump's Tariffs

JAKARTA, KOMPAS — The government is making an offer to increase the volume of imports from the United States as a “tribute” that is expected to make President Donald Trump relax the reciprocal import tariff on Indonesian products by 32 percent.

In order not to disrupt the trade balance and the State Budget (APBN), steps to increase imports of products from the US will be carried out in the form of reallocation from other countries.

This was conveyed by the Coordinating Minister for Economic Affairs Airlangga Hartarto at an event entitled "Economic Discussion with the President of the Republic of Indonesia: Strengthening Indonesia's Economic Resilience amidst the Wave of Trade Tariff Wars" at Menara Mandiri, Jakarta, Tuesday (8/4/2025).

"The government will increase imports from the US, especially agricultural products that are not available in Indonesia, namely soybeans and wheat. We are also prepared to buy LPG and LNG (liquefied natural gas), so that there is an increase (in imports) from the US," he said.

The opportunity to increase imports from the US is also in line with the US trade balance data to Indonesia which is still in deficit reaching 18 billion US dollars in 2024.

However, Airlangga ensured that the increase in imports from the US did not increase the overall purchase allocation. However, it was only a shift in imports from products that previously came from other countries. "This does not increase (purchases), but a reallocation of purchases, a switch. So, it does not disrupt the APBN," he said.

The US's universal import tariff of 10 percent has been in effect worldwide and has started on April 5, 2025. Meanwhile, the reciprocal or "reciprocal" import tariff ranging from 11-49 percent to a number of countries will be in effect on April 9, 2025.

Thus, the Indonesian government only has a deadline until April 9, 2025 to submit an official response to the imposition of import tariffs by the US government. An official letter conveying Indonesia's position on the new tariffs set by Trump will also be issued at the deadline.

The government will carry out large-scale tax reforms due to the impact of the US import tariff policy.

By Trump, Indonesia was imposed a new import tariff of 32 percent. This figure is smaller than Cambodia which was given a new import tariff of 49 percent, followed by Laos 48 percent, then Vietnam 46 percent and Thailand 36 percent.

Meanwhile, Malaysia and Brunei Darussalam each have 24 percent, then the Philippines 17 percent and Singapore 10 percent.

Later, President Prabowo Subianto will also assign Finance Minister Sri Mulyani Indrawati and Foreign Minister Sugiono to accompany Airlangga in negotiating reciprocal or reciprocal tariffs with US economic policy makers.

Furthermore, in a Q&A dialogue session with entrepreneurs, investors, and workers, Indonesian President Prabowo Subianto said that the government will also remove import quotas. This step is expected to further ensure the smooth flow of trade and make it easier for business actors.

According to Prabowo, he has directly instructed the relevant ministries/institutions to eliminate the import quota mechanism.

"I ask, there is a minister of agriculture, a minister of trade, there is no need for quotas. Whoever wants to import meat, please do so. Anyone can import, brothers and sisters. Want to import anything, please do so, just open up. Our people are already smart," Prabowo said.

Import quota is a government policy to regulate the amount of goods that can be imported into the country in a certain period of time. So far, import quotas have been an instrument to maintain trade balance and protect domestic industry.

On that occasion, Prabowo did not elaborate in detail on the plan to eliminate import quotas for which commodities and from which countries.

However, in an official statement issued by the Press, Media and Information Bureau (BPMI) of the Presidential Secretariat, the elimination of import quotas was primarily aimed at goods that concern the livelihoods of many people.

On the same occasion, Sri Mulyani said that the government will carry out large-scale tax reforms due to the impact of the US import tariff policy. This large-scale reform step covers the fields of taxation, import duties, export duties, and excise.

"The reform is aimed at easing the burden on the business world and increasing national competitiveness. Therefore, this reform is carried out more ambitiously, both in terms of administration and tariff adjustments," he said.

The government noted that the tariffs imposed on business actors can reach 32 percent. However, with various reform steps prepared, the burden can be reduced significantly.

Sri Mulyani revealed that the tax policy on import Income Tax (PPh) will be adjusted for certain products. The rate which was originally 2.5 percent will be reduced to 0.5 percent. This means that there will be a reduction in the tax burden by 2 percent.

In addition, tariff adjustments will also be made to imported products from the US. Sri Mulyani explained that the tariffs that were originally 5-10 percent will be reduced to 0-5 percent. This policy has the potential to reduce the tariff burden by up to 5 percent.

Meanwhile, Chairman of the National Economic Council (DEN) Luhut Binsar Pandjaitan said that Indonesia's export contribution to gross domestic product (GDP) was only around 23.8 percent, and exports to the United States only covered 10 percent of total national exports. That way, the risk of Trump's tariffs on the Indonesian economy remains under control.

"The impact on Indonesia's GDP from US reciprocal tariffs is also expected to be limited. We are conducting very intensive simulations during this Eid," he said.

The Chairperson of the Indonesian Employers Association (Apindo) Shinta Kamdani reminded the government to accurately identify US products whose import volumes will be increased so as not to disrupt domestic industry.

"So, in principle, we are the ones who directly identify American products that are needed by Indonesia. Of course, in terms of oil and gas, it is certain, then cotton, wheat, soybeans, and corn," said Shinta.

The import of these commodities, he continued, is needed by Indonesia because it currently cannot produce them itself. However, Shinta also emphasized that to maintain the performance of the trade balance, Indonesia also needs to have a large export space to the US market.

"I'll give an example, we have textiles, apparel. We export a lot, but we can also import cotton from America. Well, we are exploring this," said Shinta.

Contacted separately, President Director of PT Era Mandiri Cemerlang Tbk, a company that processes and exports various fishery products, Johan Rose, hopes that the negotiations attempted by the government will produce positive results so that Indonesian exports will continue to grow and develop.

He said that in 2024, the company's export market share to the US will reach 33 percent, including tuna, snapper, mackerel, swordfish, octopus, and lemadang. Although the impact of the 32 percent tariff cannot be calculated yet, he assessed that there would be a decrease in demand for products in the primary commodities they sell in the range of 10 percent.

"The company hopes that the Indonesian negotiation team represented by the Coordinating Minister for Economic Affairs and the Minister of Finance will provide positive results so that Indonesian exports will continue to grow and develop," he told Kompas.

Johan continued, they also expect a follow-up policy on import tariffs in the form of a reduction in US personal and corporate income tax rates. According to him, this policy will have a positive impact and increase the purchasing power of the US people so that business activities can return to normal.