US Reciprocal Tariffs Also Take into Account Indonesia's Myriad Non-Tariff Barriers

JAKARTA, KOMPAS – The imposition of reciprocal tariffs by the United States on Indonesia is not solely based on considerations of trade balance deficits and tariff barriers. A multitude of non-tariff barriers from Indonesia, including those in the fiscal, taxation, food, and import licensing sectors, which are deemed detrimental to the U.S., are also taken into account.

On April 2, 2025, local time, U.S. President Donald Trump announced reciprocal tariffs or retaliatory import duties on trade partner countries. The basic reciprocal tariff, set at 10 percent, will take effect on April 5, 2025. Meanwhile, specific reciprocal tariffs, including those imposed on Indonesia, will take effect on June 9, 2025.

The reciprocal tariff imposed by the United States on Indonesia is set at 32 percent. Indonesia's reciprocal tariff rate is notably higher compared to South Korea's (25 percent), Japan's (24 percent), and the European Union's (20 percent).

However, Indonesia's reciprocal tariff is still lower than that of several ASEAN member countries. Cambodia is subject to the highest reciprocal tariff, at 49 percent, followed by Vietnam at 46 percent and Thailand at 36 percent.

Indonesia's reciprocal tariff even approaches the additional reciprocal tariff of China, which stands at 34 percent. Previously, the country that has been a longstanding rival in the U.S. trade war was already subjected to a 20 percent tariff.

An international trade observer and economist from the Faculty of Economics and Business at the University of Indonesia, Fithra Faisal Hastiadi, on Thursday (3/4/2025), stated that the reciprocal tariffs imposed by the U.S. on Indonesia are quite high. In calculating these tariffs, the U.S. not only considers the trade balance deficit and tariff barriers but also non-tariff barriers.

This is stated in the annual report of the 2025 National Trade Estimate (NTE) published by the Office of the United States Trade Representative (USTR). The NTE complements the America First 2025 Trade Policy Agenda issued by the USTR on February 28, 2025.

"In the report, there are 16 points of Indonesian policies deemed detrimental to the U.S. Some of these are related to tariff and non-tariff policies, such as in the fiscal and taxation sectors, food, and import licensing," he stated when contacted from Jakarta.

Fitra gave an example, in the report, USTR said Indonesia set import duties on 99 percent of agricultural products above 25 percent. As for a number of non-agricultural products, such as cars, iron, steel, and certain chemical products, the import duty was set at 36.5 percent.

In fact, Indonesia as a member of the World Trade Organization (WTO) should follow the Most-Favored-Nation (MFN) tariff provisions. The standard tariff applied equally to all trading partners of a country in 2023 is a maximum of 8 percent.

There are 16 points of Indonesian policies that are considered detrimental to the US. Some of them are related to tariff policies, and non-tariffs such as in the fiscal and taxation sectors, food, and import licensing.

In terms of import licensing, Fithra continued, the US assessed that the process of issuing import approval (PI) in Indonesia is quite complicated because it must go through various 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, USTR also said that Indonesia imposed restrictions on feed corn imports by limiting Perum Bulog's import rights," he said.

Kompas noted that in NTE 2025, the US also questioned the complexity of obtaining halal certification and meeting domestic content level (TKDN) requirements in Indonesia. Indonesia is also considered to have implemented strict control over sugar imports through a quantitative import restriction mechanism (import quota setting).

The US also accused Indonesia of providing fiscal and non-fiscal subsidies to domestic business actors and industries. In fact, the US also highlighted the provision of interest subsidies on loans to Indonesian micro, small, and medium enterprises (MSMEs).

The complexity of the US NTE 2025, which targets a number of policies in several ministries/institutions, has made the Indonesian government not rush to respond to Trump's reciprocal tariff policy. The Coordinating Ministry for Economic Affairs, which was originally going to hold a press conference to respond to the latest US policy on Thursday (3/4/2025), at 11:00, postponed the event.

The Coordinating Ministry for Economic Affairs' Public Relations announced the postponement of the online press conference at around 11:15 a.m. The reason was that the US tariff policy was very technical with various commodities, so it still required comprehensive discussion at the relevant ministry/institution level.

The press conference was scheduled to feature speakers such as the coordinating minister for economic affairs, the minister of finance, the minister of trade, the minister of foreign affairs, and the deputy minister of industry.

Institute for Development of Economics and Finance (Indef) Program Director Eisha Maghfiruha Rachbini said that the implementation of the reciprocal tariff will have a direct impact on the decline of Indonesian exports to the US. On an annual average, Indonesia's export market share to the US is 10.3 percent, the second largest after Indonesia's exports to China.

"Indonesian products such as textiles, footwear, electronics, furniture, as well as agricultural and plantation products, such as palm oil, rubber, fisheries, will be affected," said Eisha.

He explained that with the implementation of reciprocal tariffs, trade will be diverted from low-cost markets to high-cost markets. This will cause high costs for Indonesian exporters. Thus, production and employment growth could slow down.

Therefore, the Indonesian government needs to immediately negotiate with the US to minimize the impact of reciprocal tariffs on Indonesian export products entering the US market. The power of diplomatic negotiation is very crucial in mitigating the impact of the trade war with the US.

In addition, Eisha continued, the Indonesian government also needs to optimize bilateral and multilateral trade agreements, comprehensive economic cooperation (CEPA), and initiate trade cooperation agreements with non-traditional countries. That way, exporters affected by US tariff policies can shift markets.

"The Indonesian government also needs to provide fiscal incentives, subsidies and tax breaks to help industry players cope with rising costs and reduced demand due to the impact of tariffs and the US trade war," he said.

Indonesia also needs to bring up the tariff privileges granted by the US through GSP. This is important considering Trump tends to ignore GSP and prefers to apply reciprocal tariffs.

Meanwhile, Fithra also encouraged the Indonesian government to immediately negotiate with the US. Indonesia must not lose to Vietnam which has started negotiations with the US. Various US objections to Indonesia contained in the NTE 2025 could become Indonesia's "weapon" in the negotiations.

In addition, Indonesia also needs to bring up the tariff privileges granted by the US through the general system of preferences (GSP). When announcing the reciprocal tariffs, Trump did not mention GSP at all.

"So many GSP recipient countries, including Indonesia, are confused about whether the products on the GSP list are included in those subject to reciprocal tariffs or not. Or it could be that Trump tends to ignore GSP and prefers to apply reciprocal tariffs," Fithra said.

GSP is a tariff reduction scheme for developing and less developed countries. The purpose of GSP is to provide duty-free and quota-free market access to these countries. In return, countries providing GSP will enjoy various import commodities at relatively affordable prices.

In his Instagram stroy, Minister of Trade Budi Santoso made a statement regarding the US reciprocal tariff policy. "Today, the government is moving quickly to coordinate and communicate between ministries and related institutions to respond to the Trump 2.0 tariff policy... so that the steps taken by the Indonesian government remain measurable and have a positive impact on the Indonesian economy," he wrote.

Previously, Budi stated that he would not adopt the protectionist path because it could backfire on Indonesia's export performance. Indonesia will prioritize strategic dialogue with countries that are protective of Indonesia.

To mitigate the US tariff hike plan, Indonesia will also take the path of trade diplomacy by dialogue or negotiation with the US. The Ministry of Trade even plans to reactivate and renew the Trade and Investment Framework Agreement (TIFA) with the US which was agreed in 1966.

In addition, the government will also explore a limited trade deal. The goal is to reduce tariffs and resolve non-tariff issues between Indonesia and the US.