Indonesia Navigates Global Trade Tensions Amid US Tariff Pause

In an unexpected twist to the escalating global trade wars, the United States has announced a 90-day pause on its newly imposed tariffs, including a hefty 32 percent levy on Indonesian exports. Billed as a “strategic review period,” this temporary reprieve offers Jakarta a narrow window to recalibrate its trade strategy amidst a volatile economic landscape dominated by tit-for-tat measures between major powers like the US and China. Yet, as markets exhale briefly, the pause brings more questions than answers for Indonesia, a nation caught in the crosshairs of protectionist policies.

A Fragile Respite in a Trade Storm

The US tariffs, introduced earlier this month as part of President Donald Trump’s reciprocal trade doctrine, targeted multiple countries with rates starting at 10 percent and climbing to 32 percent for Indonesia. The policy, framed as a push for “fair trade,” has disrupted global markets, with Indonesia’s trade surplus of US$16.8 billion with the US in 2024 now hanging in the balance. China, in retaliation, imposed an 84 percent tariff on US goods after Washington escalated its own tariffs on Chinese imports to 125 percent. Vietnam, too, faced a steep 46 percent tariff, prompting swift diplomatic maneuvers from Hanoi and Phnom Penh to mitigate the damage.

For Indonesia, the pause does little to resolve the underlying uncertainty. While global equities and trade-exposed sectors saw brief relief rallies, bond yields and currency volatility remain high in emerging markets. Investors, though less fearful, are far from reassured. The 90-day window is not a resolution but a countdown, leaving exporters, policymakers, and analysts on edge about what might follow.

Indonesia’s Diplomatic Play

Rather than retaliating with its own tariffs, Indonesia has opted for a measured response, prioritizing diplomacy over confrontation. The government recently unveiled a series of trade concessions aimed at softening the impact of US policies. Ahead of a high-level delegation to Washington, Jakarta slashed import duties on US goods, including electronics, steel, and medical equipment, while committing to increased purchases of American energy and agricultural products. The signal is clear: Indonesia seeks cooperation, not conflict.

In a parallel move, President Prabowo Subianto directed the elimination of import quotas on key goods, a step toward aligning with global trade norms. If fully implemented, this could reduce supply-chain bottlenecks and enhance price transparency, projecting an image of modernization to international investors. However, the timing raises concerns. With China seeking alternative export markets amid its own tariff battles, the removal of quotas risks exposing Indonesia to dumping pressures in vulnerable sectors like steel, footwear, and machinery.

To counter this, experts suggest Jakarta must bolster its trade defense mechanisms, including anti-dumping investigations and safeguard measures. As one trade analyst noted, “Opening the door to trade is a friendly gesture, but you still need a lock just in case.” Targeted support for industries such as apparel and footwear—where over half of output is destined for the US market—is also in the works to cushion potential losses.

The China Factor and Regional Risks

Indonesia’s economic ties with China add another layer of complexity. In 2024, China accounted for 24.5 percent of Indonesia’s exports, 30.3 percent of its imports, and over 21 percent of its foreign direct investment. A projected slowdown in China’s GDP growth—potentially dipping below 4.5 percent, with the Asian Development Bank forecasting 4.3 percent by 2026—could dampen regional demand and intensify dumping risks. Goldman Sachs has warned that a full-scale US tariff regime could shave 2.4 percentage points off China’s growth, a ripple effect that would inevitably hit Indonesian exporters already under strain.

The interconnectedness of regional economies means Indonesia cannot afford to focus solely on the US tariff pause. A broader strategy to mitigate risks from China’s slowdown is essential, particularly as global supply chains face increasing disruption. The government’s recent moves to deepen engagement with frameworks like BRICS and the Regional Comprehensive Economic Partnership (RCEP), alongside expanding Local Currency Settlement (LCS) agreements, are steps in the right direction. However, speed and scale are critical to ensure these initiatives provide a meaningful buffer.

Building Resilience Through Diversification

The tariff pause offers Indonesia a rare opportunity to diversify its trade portfolio and reduce reliance on the US-China axis. Accelerating partnerships in South-South corridors and regional markets could help balance exposure, while expanding LCS agreements with a wider range of partners would strengthen supply chain resilience. At the same time, domestic reforms—such as cutting bureaucratic red tape and providing fiscal support to local businesses—could bolster competitiveness in a shifting global landscape.

From a strategic standpoint, Indonesia appears to be playing a long game. While the US and China engage in tariff brinkmanship, Jakarta’s approach of restraint and cooperation aims to preserve its position without alienating key partners. Moves to join BRICS and enhance regional alliances signal a quiet diversification of diplomatic and economic leverage. As one observer put it, “This isn’t about winning a single round; it’s about surviving the entire tournament.”

Market Reactions and Future Uncertainties

Markets have responded to the tariff pause with cautious optimism. Trade-exposed sectors in Indonesia saw modest gains, reflecting hope that diplomacy might yield a softer outcome. Yet, underlying volatility persists, with the Indonesian rupiah facing pressure amid broader emerging market concerns. For exporters, particularly in price-sensitive industries, the next 90 days will be a critical test of adaptability.

The broader implications of “Trumponomics” loom large. As global trade rules are rewritten with aggressive timelines and unpredictable shifts, Indonesia’s ability to remain flexible and build systemic resilience will be key. Beyond boosting exports, the focus must shift to protecting the economy from external shocks, whether through diversified markets, stronger trade defenses, or enhanced regional cooperation.

A Countdown, Not a Detour

As the 90-day pause unfolds, Indonesia stands at a crossroads. The temporary halt in US tariffs provides breathing room, but it is far from a guarantee of stability. With major powers locked in a cycle of retaliation and uncertainty permeating global markets, Jakarta must act decisively to safeguard its economic interests. Whether through diplomatic outreach, domestic reforms, or strategic diversification, the window to build a more resilient trade framework is now. In a world of sharp elbows and short fuses, Indonesia’s edge may lie in maintaining a cool head and a steady course.