Indonesia’s textile and apparel sector, a cornerstone of the nation’s economy, is bracing for a severe blow as new US tariff hikes threaten to upend its largest export market. With 40 percent of Indonesian textile exports destined for the United States, industry leaders warn that the impending 32 percent “reciprocal” tariff—temporarily reduced to 10 percent for a 90-day negotiation window—could trigger widespread layoffs and exacerbate existing struggles in an already beleaguered sector.
Looming Tariffs and Immediate Impacts
The US, under President Donald Trump, announced the tariff policy on April 2, 2025, targeting countries with significant trade surpluses, including Indonesia, which recorded a $16.8 billion surplus with the US last year. While the initial 32 percent tariff was scaled back to a baseline of 10 percent for 90 days starting April 14, the reprieve offers little comfort to an industry reliant on American consumers. Redma Gita Wirawasta, chairman of the Indonesian Filament Yarn Producers Association (APSyFI), highlighted the scale of the challenge during a press conference on April 4, stating, “That would disrupt the domestic industry and accelerate layoffs across the board.”
The textile sector was already grappling with declining export demand and a flood of cheap imported goods before the tariff announcement. The collapse of PT Sri Rejeki Isman (Sritex), a major textile manufacturer that declared bankruptcy in October 2024 and ceased operations on March 1, 2025, left over 10,000 workers unemployed. Similarly, in Banten province, two footwear giants—PT Adis Dimension Footwear and PT Victory Chingluh Indonesia—have laid off thousands of workers since early March, according to the Banten Manpower and Transmigration Agency. These closures underscore the fragility of an industry now facing an additional external shock.
Price Competitiveness at Risk
Indonesia ranks as the fifth-largest textile and apparel exporter to the US, trailing behind China, India, Vietnam, and Bangladesh. However, the new tariffs threaten to erode its price competitiveness in this critical market. Redma warned that countries facing even steeper US tariffs might redirect their excess supply to Indonesia, flooding the domestic market with cheaper goods and further undermining local manufacturers. This dual pressure—losing ground in the US while facing increased competition at home—has prompted calls for tighter import controls and stricter enforcement of local content requirements, known as TKDN in Indonesia.
The 90-day tariff suspension has sparked mixed reactions. Some exporters, such as the Association of Indonesian Metalworking and Machinery Companies (Gamma), see it as an opportunity for a short-term surge in US demand as importers rush to stockpile goods before the higher rates kick in. However, Redma cautioned against such a strategy, noting that a spike in exports could widen Indonesia’s trade surplus with the US, potentially justifying even harsher tariffs in the future. Instead, he urged a focus on diplomatic solutions and strategic trade adjustments.
Strategic Responses and Trade Negotiations
In response to the crisis, textile industry associations, including APSyFI and the Indonesian Textile Association (API), have proposed increasing imports of raw materials like cotton from the US as a bargaining chip to balance bilateral trade. Redma noted that Indonesia’s cotton imports from the US have plummeted from $300 million annually to just $140 million due to competition from intermediary textile products sourced elsewhere. Shifting procurement back to American cotton, he argued, could serve as a goodwill gesture in negotiations without significantly impacting local prices, provided manufacturers align with the US harvest season. API chairman Jemmy Kartiwa Sastraatmaja echoed this sentiment, emphasizing the need for pragmatic trade concessions.
The Indonesian government has pledged to engage with US counterparts, offering to boost imports of American goods and ease regulatory barriers to trade. Finance Minister Sri Mulyani Indrawati has also stressed the importance of diversifying export markets to reduce reliance on the US, which remains the world’s largest consumer of textile goods. However, industry leaders are skeptical about the feasibility of such diversification in the short term. API deputy chairman Ian Syarif pointed out that other major textile-producing countries like China, India, Vietnam, and Bangladesh impose their own trade barriers to protect domestic industries, limiting Indonesia’s options. “Our export destinations must have the purchasing power to absorb our products. And in the textile industry, the biggest consumer is still the US” said Ian.
Domestic Market as a Buffer?
Amid the uncertainty, some industry voices suggest that Indonesia’s own domestic market—home to over 270 million people—could offer a partial buffer against the loss of US demand. API’s Jemmy advocated for a dual strategy of negotiating with the US while protecting local manufacturers from cheap imports. Policies to incentivize domestic consumption, such as public awareness campaigns or subsidies for local textile purchases, could help stabilize the sector. However, this approach faces challenges, including competition from low-cost imported goods that have already penetrated the market.
The potential influx of redirected textile supplies from countries hit harder by US tariffs adds another layer of complexity. Without robust import controls, Indonesian manufacturers risk being undercut by foreign competitors in their home market, a scenario that could deepen the industry’s woes. Redma emphasized the urgency of government intervention to enforce trade regulations and safeguard jobs, warning that inaction could lead to a domino effect of factory closures and layoffs.
Broader Economic Implications
The textile and apparel sector is a vital component of Indonesia’s economy, employing millions directly and indirectly, particularly in regions like Central Java, a hub for garment manufacturing. The ripple effects of sustained tariffs could extend beyond factory floors, impacting ancillary industries such as logistics, retail, and raw material suppliers. Economists warn that a prolonged trade dispute with the US could dampen investor confidence in Indonesia at a time when the government is pushing to attract foreign direct investment to fuel economic growth.
Moreover, the tariff hikes come against the backdrop of global economic uncertainty, with fluctuating demand and supply chain disruptions already straining manufacturers. For Indonesia, which has positioned itself as a key player in the global textile supply chain, the loss of US market share could have long-term consequences for its trade balance and industrial competitiveness. While the 90-day suspension offers a window for dialogue, the stakes are high, and the outcome of negotiations remains uncertain.
Human Cost of the Crisis
At the heart of this trade conflict are the workers who stand to lose the most. The closure of Sritex and layoffs at footwear manufacturers in Banten are stark reminders of the human toll of industrial decline. Many of these workers, often from low-income households, face an uncertain future with limited alternative employment opportunities in a competitive labor market. Community leaders in Central Java and Banten have called for government support, including retraining programs and financial assistance, to help displaced workers transition to new roles.
Local unions have also raised concerns about the lack of consultation with workers during trade negotiations, arguing that their voices must be heard in discussions that directly impact their livelihoods. As one union representative in Jakarta noted, “We are not just numbers in a trade deficit. We are families, communities, and the backbone of this industry.”
Looking Ahead: A Fragile Balance
As the 90-day tariff suspension ticks down, Indonesia faces a delicate balancing act between protecting its domestic industry and maintaining access to the lucrative US market. The government’s diplomatic efforts, coupled with industry proposals to increase US cotton imports, may offer a path forward, but success is far from guaranteed. Meanwhile, the specter of mass layoffs and factory closures looms large, casting a shadow over millions of workers and their families.
For now, the textile sector holds its breath, hoping for a resolution that preserves jobs and market share. Yet, with global trade tensions showing no signs of abating, questions remain about whether Indonesia can navigate this crisis without sacrificing its economic ambitions or the well-being of its people.