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15 April 2025 (closed)
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Trump's Tariff Effect on Indonesian and Southeast Asian Market
US President Donald Trump's recent tariffs have affected markets beyond the Americas. The ripple effects of the US tariffs have brought fresh trading opportunities and new challenges to mixed economies like Indonesia and the Southeast Asian market. As Southeast Asia's largest economy, Indonesia is at the forefront of foreign policies that impact international trade.
International Trade in Indonesia and Southeast Asia Markets
Indonesia is a mixed market economy comprising state-owned enterprises (SOEs) and large private business groups. The Association of Southeast Asian Nations (ASEAN) member country is popularly described as a lower-middle-income economy due to micro, small, and medium-sized enterprises accounting for 60% of its gross domestic product (GDP).
Indonesia's top exports as of 2023 include coal briquettes, palm oil, ferroalloys, lignite, and petroleum gas. Indonesia exports mainly to China, the United States, India, Japan, and Singapore. Insights into the IDX Composite Index and Straits Times Index on Tradingview Singapore show the strength of the Indonesian and Singaporean stock markets, respectively. Due to a heavy focus on raw materials exports, Indonesia's top firms in its stock market operate in the energy and materials industry, while others provide financial services.
In a bid to shift from a focus on raw materials exports to manufactured products, the Indonesian government established the Mineral and Coal Mining Law in 2009 to legalise the exploration and processing of mineral and coal resources. As of 2023, Indonesia remains the largest exporter of lignite, a mining product, accounting for over 70% of global lignite export value.
Indonesia's international trade relations on imports feature a heavy dependence on other Southeast Asian countries like China, Singapore, Malaysia, and the United States for refined petroleum, integrated circuits, broadcasting equipment and petroleum gas. To ensure trade barriers such as tariffs and import and export restrictions do not impact trade with other countries and the economy, Indonesia entered free trade agreements with Japan, Korea, Australia, the European Union and ASEAN countries. A prospective Indonesia-United States Free Trade Agreement was proposed in 2023 under former US President Joe Biden but is yet to be enacted.
Rising US Tariffs Disrupt Southeast Asian Trade and Push Indonesia Toward Policy Shifts
Since US President Donald Trump took office in January 2025, the government’s protectionist approach has led to a wave of trade tariffs enforced on its trading partners. In the recent developments, US President Donald Trump announced new tariffs, jolting the stock markets as investors respond to the news. The new tariffs included at least 10% tax on imported goods into the US, while the US’s largest trading partners were charged higher.
Trump placed a 20% tariff on imports from the European Union, 34% on Chinese imports, 32% on Indonesian goods, 46% on Vietnam products, and 36% on Thailand goods. The highest tariff on a South East Asian country, 49%, was placed on Cambodia. Trump's tariffs have created an imbalance in global trade as other countries retaliate with tariffs and other countermeasures.
For Indonesia and other South East countries, higher trade tariffs with the United States present several consequences. In 2023, Indonesia's exports to the US were worth $23.28 Billion, with the majority of the trade comprising palm oil, electrical machinery, and broadcasting equipment, making up about 10% of total exports. With the 32% tariff on Indonesian products entering the US, businesses dependent on such materials may be compelled to seek cheaper alternatives.
Some Indonesian countries moved their base of operations to other ASEAN countries like Vietnam and Cambodia to eliminate trade tariff restrictions. The US government was, however, quick to place even higher tariffs on both Southeast Asian countries. Amidst the recent weakening of the Indonesian Rupiah, higher tariffs on Indonesia's exports to the US will only contribute to inflation in the country. Consequently, businesses and consumers will be faced with lower purchasing power, jeopardising the economy of the country and the standard of living. As businesses move to other Southeast Asian countries hoping for a better trade policy, they may encounter even higher export taxes, as seen in Vietnam and Cambodia.
In the past week, Trump announced a 90-day pause on tariffs he had planned for multiple countries but increased levies on Chinese imports to 145%. China hit back with its own retaliatory tariff, increasing taxes on American goods to 125%. The ripple effect of the exorbitant tariff on Chinese products entering the US includes the diversion of demand to other countries like Indonesia, Vietnam, and Bangladesh, especially for textile and furniture products. Recent initiatives by the Indonesian government to reach concessions on US imports include a scheduled meeting with the US White House on April 17.
Indonesia's Finance Minister mentioned the country's plans to buy US-liquefied petroleum gas, liquefied natural gas, and soybeans as part of the negotiation efforts. In addition, taxes on US steel and mining products and health equipment will be reduced. Further plans include reducing taxes on imported electronics, mobile phones, and laptops to 0.5% from 2.5%.
According to President Trump, his recent trade policies and tariff strategies are meant to address the unfairness in the global trading system and bring jobs and factories back to the United States. Thus far, the global tariffs have resulted more in trade wars and stock market volatility than the anticipated effects on the US economy. In contrast, Indonesia and Southeast Asian markets with the US as a major trading partner are compelled to bend their trade policies to negotiate better trading terms.
Adapting to a New Era of Global Trade
Trump's tariffs have shaken the foundation of international trade, leaving countries like Indonesia and others in Southeast Asia scrambling to adjust. The tariff on Indonesian goods has already caused shifts in business operations and economic policies. While Indonesia is working to soften the blow by engaging in diplomatic talks and offering trade incentives to the US, the broader impact of these protectionist measures continues to unfold. Moving forward, Indonesia and its ASEAN partners must diversify their markets and strengthen regional cooperation to reduce dependence on volatile trade relationships with the US. The long-term resilience of these economies will depend on how well they adapt to this new era of global trade uncertainty.