As Donald Trump settles into his second term as US President, a seismic shift in global trade dynamics is becoming impossible to ignore. The pivot from ‘friendshoring’—a policy of redirecting supply chains to politically allied nations—to ‘reshoring’, which prioritises bringing manufacturing back to American soil, is sending ripples through economies worldwide. For Indonesia, an emerging market with ambitions of self-reliance, this transformation poses both a challenge and an opportunity. Jakarta finds itself at a crossroads, forced to rethink its economic strategies in a world where globalisation appears to be in retreat.
The implications of reshoring are stark. Under friendshoring, championed during the Biden administration, the US sought to bolster strategic industries by aligning supply chains with trusted partners. Policies like the CHIPS Act and the Inflation Reduction Act incentivised semiconductor and clean energy investments within the US or among allies. Trump’s administration, however, has intensified this inward focus, advocating for a return of manufacturing to American shores to boost domestic jobs and reduce reliance on foreign production. For a country like Indonesia, which has long benefited from foreign direct investment (FDI) through export-oriented manufacturing, this signals a potential drying up of opportunities.
A Shared Aspiration for Self-Reliance
Indonesia’s economic aspirations resonate with the motivations behind reshoring. The desire to produce goods domestically—what might be termed ‘homeshoring’—is a recurring theme in Jakarta’s policy discourse. Government officials frequently decry the influx of imports, particularly from China, framing them as a threat to local industries. This sentiment mirrors Washington’s push for self-sufficiency, albeit from the perspective of an emerging economy rather than a high-income one. 
Yet, Indonesia faces a unique conundrum. Historically, the country has attracted global corporations seeking low-cost labour to produce goods for export. But as automation reshapes manufacturing, labour costs are becoming less decisive. Energy and raw materials now constitute a larger share of production expenses, diminishing the competitive edge of cheap manpower. “Cheap labour no longer sells like it used to,” a senior trade official noted recently, encapsulating the challenge for nations like Indonesia that have relied on this advantage for decades.
The broader question looms: is globalisation in permanent decline? While the answer remains uncertain, the current trajectory suggests a retreat from the open trade policies of the late 20th and early 21st centuries. For Jakarta, this necessitates a strategic pivot. Copying Vietnam’s ‘China+1’ model—positioning itself as an alternative manufacturing hub to China for access to Western markets—is no longer viable if major economies like the US and Europe prioritise domestic production over international partnerships.
Import Substitution as a Domestic Lifeline
In response, Indonesia is turning inward with a renewed focus on import substitution—a policy aimed at producing goods locally to reduce dependence on foreign imports. With a population of over 270 million, the country boasts a vast domestic market, a strength the government is keen to leverage. This large consumer base has been a key argument in attracting investment, even as global trade doors appear to be closing.
Import substitution, however, is not without risks. Historically, such policies have led to inefficiencies and higher costs for consumers in some contexts, as domestic industries, shielded from international competition, may lack the incentive to innovate. If Indonesia is to succeed, it must ensure that local manufacturing becomes competitive not just in price but in quality. This will require significant investment in infrastructure, technology, and skills development—areas where the country has made strides but still faces gaps.
Moreover, the shift towards reshoring in major markets could exacerbate Indonesia’s trade imbalances. As export opportunities dwindle, the country may struggle to earn the foreign exchange needed to fund imports of essential goods and technologies. Balancing domestic production with the realities of a still-interconnected global economy will be a delicate act.
Regional Opportunities Amid Global Retreat
While global trade contracts, regional integration offers a potential lifeline. Indonesia, as a key member of the Association of Southeast Asian Nations (ASEAN) and the Regional Comprehensive Economic Partnership (RCEP), is well-positioned to advocate for open markets within its neighbourhood. If ASEAN and RCEP can uphold principles of comparative advantage—where countries specialise in producing goods and services where they are most efficient—the region could become a beacon for investment in an era of global retrenchment.
This vision aligns with historical economic theories, such as those of David Ricardo, who argued that trade benefits all parties when they focus on their strengths. For Indonesia, this could mean doubling down on sectors like palm oil, nickel, and textiles, where it holds a competitive edge, while fostering intra-regional trade to offset losses in Western markets. Such a strategy would not only bolster economic resilience but also position Southeast Asia as an attractive destination for companies seeking stability amid global uncertainty.
Yet, achieving this requires political will and coordination among ASEAN members, a bloc often hampered by disparate interests and uneven development levels. Indonesia, as the region’s largest economy, must take a leadership role in driving this agenda, even as it navigates domestic pressures to prioritise national interests over regional ones.
The Broader Implications of Reshoring
The US push for reshoring is not merely a trade policy shift; it reflects a broader geopolitical realignment. By prioritising domestic production, Washington aims to insulate itself from supply chain vulnerabilities exposed during events like the Covid-19 pandemic and escalating tensions with China. For emerging economies like Indonesia, this underscores the fragility of relying on export-led growth in an era of deglobalisation.
If confirmed, the long-term impacts of reshoring could reshape global economic hierarchies. Developing nations that have thrived on offshoring may find their growth models obsolete, forcing a scramble for new strategies. For Indonesia, this might mean a dual focus: strengthening domestic industries while carving out a niche in regional markets less affected by Western policy shifts. However, estimates of these impacts remain unconfirmed, and policymakers must tread cautiously to avoid overreacting to trends that may yet reverse.
Beyond economics, reshoring carries social and political ramifications. In Indonesia, the push for self-reliance could bolster national pride and political stability if successful—but risks public discontent if it leads to higher costs or shortages of goods. The government must manage these expectations, communicating clearly that the transition to a more insular economy will not be without growing pains.
Indonesia stands at a pivotal moment. The global retreat from open trade, epitomised by the US shift to reshoring, demands a recalibration of economic priorities. Jakarta’s instinct to prioritise domestic production aligns with broader trends, but the path forward is fraught with challenges. Building a competitive manufacturing base, leveraging a large domestic market, and championing regional integration through ASEAN and RCEP are critical steps—but they require vision, investment, and patience.
For now, the jury remains out on whether globalisation’s decline is permanent. Yet, as the world’s economic currents shift, Indonesia cannot afford to be a bystander. By adapting to these changes with pragmatism and foresight, the country can turn a potential crisis into an opportunity to redefine its place in the global order. The stakes could not be higher, nor the need for bold action more urgent.
