Indonesia / U.S. tariff deal
Overview of the New Trade Agreement
In July 2025, Indonesia and the United States finalized a bilateral trade deal after direct negotiations between Presidents Prabowo Subianto and Donald Trump. This agreement was forged under pressure Trump had threatened a steep 32% tariff on Indonesian goods starting August 1. The deal reduced that to 19%, while granting zero tariffs on U.S. exports to Indonesia.
Indonesia also committed to:
- Purchasing $15 billion in U.S. energy products
- Buying $4.5 billion in American agricultural goods
- Acquiring 50 Boeing jets, many of them 777s
Comparison to Previous Trade Terms
Before this agreement, Indonesia exported goods to the United States under relatively modest tariffs, usually around 10%, though the threat of a dramatic increase to 32% loomed over recent months due to escalating tensions. That threat created considerable uncertainty for Indonesian exporters, especially those in key sectors like electronics, textiles, and agricultural products.
On the American side, exports to Indonesia ranging from machinery and electronics to agricultural goods faced tariffs typically between 5% and 10%. There were also non-tariff barriers, including stringent local content requirements that limited market access for U.S. tech and energy firms.
Now, under the new deal:
- Indonesia’s exports to the U.S. face a fixed 19% tariff. Though higher than before, this is significantly lower than the previously threatened 32%, and gives businesses clearer expectations.
- In contrast, U.S. exports to Indonesia benefit from complete tariff elimination. American energy producers, agribusinesses, and aviation giants now enjoy open access to the Indonesian market, without import duties or quota restrictions.
- Indonesia has agreed to relax local content rules specifically for U.S. companies particularly in the information and communications technology (ICT) sector allowing firms like Apple and Microsoft to expand operations more freely.
- Strategically, Indonesia pledged to purchase a substantial volume of American goods: $15 billion in energy products, $4.5 billion in agriculture, and 50 Boeing aircraft, which wasn’t part of previous trade frameworks.
All told, the new deal marks a departure from the earlier, more balanced trade environment and shifts favor toward U.S. exporters, while shielding Indonesia from harsher penalties. It’s a high-stakes bargain one that offers stability for now, but poses longer-term challenges around trade equity and fiscal pressure.
Pros of the Deal
For Indonesia:
- Avoided steep tariffs: The 19% rate is significantly better than the threatened 32%, preserving export competitiveness
- Maintained U.S. market access: Key sectors like footwear, electronics, and palm oil can continue exporting with less disruption
- Boosted diplomatic ties: Direct negotiation elevated Indonesia’s global standing and showcased Prabowo’s leadership
For the U.S.:
- Full market access: American goods now enter Indonesia tariff-free, opening doors for energy, agriculture, and tech sectors
- Strategic purchases: Boeing, ADM, Chevron, and others benefit from guaranteed multi-billion-dollar deals
- Trade deficit reduction: Helps offset the $17.9B U.S. trade deficit with Indonesia
Cons of the Deal
For Indonesia:
- Trade imbalance risk: U.S. exports face no tariffs, while Indonesian goods still pay 19% raising concerns about fairness
- Heavy financial commitments: $34B in purchases may strain Indonesia’s budget, especially with Garuda’s financial troubles
- Energy policy conflict: $15B in fossil fuel imports could undermine Indonesia’s renewable energy goals
For the U.S.:
- Limited enforcement clarity: It’s unclear how transshipped goods (e.g., Chinese products routed via Indonesia) will be monitored
- Legal uncertainty: A U.S. court challenge to Trump’s tariff framework could unravel the deal’s foundation
Strategic Implications
- Indonesia’s pivot: The deal may push Indonesia to diversify trade partners and reduce reliance on the U.S.
- ASEAN dynamics: Other Southeast Asian nations might demand similar concessions, complicating Indonesia’s regional diplomacy
- Global supply chain shifts: U.S. firms may reroute sourcing through Indonesia, affecting competitors like Vietnam and Malaysia
This deal is a classic case of diplomacy under duress Indonesia avoided a tariff cliff but at the cost of deep concessions. Whether it’s a strategic win or a long-term vulnerability depends on how Jakarta manages the financial and geopolitical ripple effects.