US Import Tariffs, Momentum to Revive Domestic Downstream Industry

JAMBI, KOMPAS—The implementation of the new 32 percent import tariff to the United States on Indonesia should serve as an opportune moment to revitalize the domestic downstream industry. The development of downstream industries can reduce Indonesia's reliance on exporting raw materials.

Economic observer from Batanghari University, Pantun Bukit, said that so far, the country's superior agricultural and plantation commodities have been superior in the world. However, almost all of them are still exported in the form of raw materials that cannot last long. For example, palm oil is sent in the form of crude palm oil (CPO). Likewise, rubber is exported in the form of crumb rubber.

"When there is an increase in import tariffs from other countries, Indonesia's position becomes difficult because it cannot refrain from exporting. It is still too dependent on exporting raw products that are not durable," said Pantun on Saturday (5/4/2025).

In the palm oil processing industry, Pantun continued, there are 130 derivative products that should be producible, such as margarine, shampoo, soap, and various types of cosmetics. However, to date, Indonesia has only been able to produce less than 20 percent in the form of palm oil derivative products. The same applies to rubber production. "More than 80 percent of domestic production is still in the form of raw materials," he added.

In fact, Indonesia is the world's largest producer of palm commodities and the second-largest producer of rubber commodities globally. Indonesia's rubber production is only slightly below that of Thailand.

"However, this large production can only be processed into raw materials. Therefore, it cannot hold off shipments (exports) for too long," he stated.

More than 80 percent of domestic production is still in the form of raw materials.

Therefore, he continued, business actors in the palm oil and rubber plantation sectors must quickly transform to develop products and markets. On the other hand, the government needs to support the establishment of downstream rubber and palm oil industries within the country. This includes providing ease of licensing, tax relief, as well as building infrastructure and supporting facilities in industrial areas.

"Build an integrated industrial area, complete with infrastructure, as well as access to electricity, water, and communication networks," he said. Thus, downstream industries can grow rapidly.

As is known, United States President Donald Trump announced a list of new base tariffs and import duties to many trading partners, last Wednesday local time. Indonesia was hit with a reciprocal tariff of 32 percent.

So far, the US has been a contributor to the national non-oil and gas trade surplus in 2024. The figure for the Indonesia-US trade surplus is 16.08 billion US dollars out of the total non-oil and gas trade surplus in 2024, which is 31.04 billion US dollars. Indonesia's non-oil and gas exports to the US include garments, electrical equipment, footwear, and vegetable oil.

Rubber farmer in Kubu Kandang Village, Batanghari Regency, Sumiatun, said farmers hope that problems in international trade will not impact the economy of small farmers. Currently, high rubber prices are enthusiastically welcomed by farmers who are celebrating Eid al-Fitr. "We hope that the price of rubber will remain stable," he said.