US Reciprocal Tariffs Potentially Eroding Indonesia's Exports and GDP

JAKARTA, KOMPAS – The imposition of reciprocal tariffs by the United States on Indonesia has the potential to erode export growth and national production. Ultimately, the growth of the national gross domestic product, or GDP, will also be affected.

Therefore, the Government of Indonesia needs to promptly negotiate with the United States (US) using the 2025 National Trade Estimate (NTE) annual report published by the Office of the United States Trade Representative (USTR) as leverage. The Indonesian government is also urged to immediately fill the vacancy of the Indonesian Ambassador to that country.

On April 2, 2025, local time, U.S. President Donald Trump imposed a reciprocal tariff on Indonesia amounting to 32 percent. The reciprocal tariff will take effect starting April 9, 2025.

Researcher at the Center for Industry, Trade, and Investment of the Institute for Development of Economics and Finance (Indef), Ahmad Heri Firdaus, on Friday (4/4/2025), stated that the US is Indonesia's second-largest trading partner. On average, the US contributes approximately 10.3 percent to Indonesia's total exports.

At the time reciprocal tariffs are implemented, Indonesia's exports to both the US and other trading partners are estimated to decrease by 2.83 percent. This projection takes into account the direct and indirect impacts of the tariff implementation on Indonesia.

Indonesia's exports to both the US and other trading partners are expected to fall by 2.83 percent.

The direct impact, Heri continued, is that Indonesia's exports of various commodities to the United States will decline. Some of these commodities include textiles, footwear, electronics, furniture, as well as agricultural and plantation products, such as palm oil and rubber, and fishery products.

"The indirect impact is that when the exports of Indonesia's trading partner countries to the US decline due to US tariff policies, Indonesia's exports to those countries will also likely decrease. For example, when China's exports to the US drop, Indonesia's exports to China also have the potential to decline," he stated during an online discussion titled "Beware of Trade War Drums."

According to Heri, the decline in exports due to direct and indirect impacts will cause a slowdown in domestic production. Based on Indef's study, Indonesian textile and apparel production is estimated to grow by -7.34 percent, electrical components -6.25 percent, electrical equipment -10.14 percent, and other manufactured products -22.11 percent.

Ultimately, Indonesia's economic growth will also be eroded. Indef estimates that the implementation of the US reciprocal tariff of 32 percent will erode Indonesia's GDP by 0.05 percent.

"The impact on GDP is indeed not as big as other countries, such as Vietnam (-0.84 percent), China (-0.61 percent), Thailand (-0.35 percent), and Malaysia (-0.11 percent). This is considering that Indonesia still has quite large trading partners, such as India, China, the European Union, and ASEAN member countries," he said.

Therefore, the Indonesian government should not underestimate the impact of the imposition of US reciprocal tariffs. The Indonesian government must immediately inaugurate the Indonesian Ambassador to the US and carry out a measured and intensive diplomatic mission with the US government.

International trade observer and economist from the Faculty of Economics and Business, University of Indonesia, Fithra Faisal Hastiadi, assessed that the Indonesian government seemed to have not anticipated the implementation of US reciprocal tariffs against Indonesia. One indicator is that the Indonesian government did not immediately appoint and inaugurate the Indonesian Ambassador to the US.

The Indonesian government also seemed unprepared for various US accusations regarding several Indonesian policies contained in the US NTE 2025. In the NTE, there are several Indonesian policies that are considered detrimental to the US, both in the form of tariff and non-tariff policies, such as in the fiscal and taxation sectors, food, and import licensing.

"Make the NTE a "weapon" for Indonesia in negotiating with the US," said Fithra.

Indef economist Tauhid Ahmad also emphasized the importance of bilateral diplomacy between Indonesia and the US. However, before negotiating with the US, Indonesia needs to review the 10 issues that the US has rolled out in the NTE 2025.

"These include trade tariffs, government service procurement, intellectual property protection, and subsidies. In fact, the US considers Indonesia to be conducting hidden subsidies. Indonesia must clarify these issues one by one," he said.

In the US NTE 2025, the imposition of US reciprocal tariffs on Indonesia is not only based on considerations of the trade balance deficit and tariff barriers. A myriad of non-tariff barriers from Indonesia, including in the fiscal, taxation, food, and import licensing sectors that are considered detrimental to the US, are also taken into account.

Kompas noted, in NTE 2025, the US assessed that the issuance of import approval (PI) in Indonesia was quite complicated because it had to go through a number of ministries/institutions. Regarding food imports, for example, the issuance of PI requires recommendations from related ministries and must be based on the balance of commodity balances.

In fact, the US also said that Indonesia imposed restrictions on the import of feed corn by limiting the import rights of Perum Bulog. The US also questioned the complexity of obtaining halal certification and meeting the domestic content level (TKDN) requirements in Indonesia.

In addition, Indonesia is also considered to have implemented strict control over sugar imports through a quantitative import restriction mechanism (import quota setting). In fact, the US also highlighted the provision of interest subsidies on loans to Indonesian micro, small, and medium enterprises (MSMEs) (Kompas, 3/4/2025).

Tauhid also emphasized that Indonesia must also dare to state that the US also applies unfair tariffs to a number of Indonesian products. For example, Indonesian textile products entering the US market are subject to a tariff of 12.7 percent, while US textile products entering Indonesia are only subject to a tariff of 1.7 percent.

Indef even noted that the US non-tariff policies are actually more numerous than Indonesia's non-tariff policies. This is indicated by the number of technical barriers to trade (TBT) and sanitary and phytosanitary (SPS) policies.

These barriers usually come in the form of labeling policies, certification, and product standards, as well as health and environmental protection. By 2024, the US had implemented 495 TBTs and SPSs, while Indonesia only had 32 TBTs and SPSs.

On April 3, 2025, Secretary of the Coordinating Ministry for Economic Affairs Susiwijono Moegiarso stated that the Indonesian government will take diplomatic measures to respond to the imposition of US reciprocal tariffs. The Indonesian government has prepared various steps to address the various issues raised by the US in the 2025 NTE.

"Indonesian President Prabowo Subianto has even instructed related ministries/institutions to deregulate or simplify and eliminate regulations that hinder trade, especially those related to non-tariff policies," he said (Kompas, 3/4/2025).