A balancing act between giants – leveraging opportunities with the US, EU and China while defending domestic industrialization priorities
Author: Maria Pechurina, Director of International Trade @ Peacock Tariff Consulting
Indonesia has quickly emerged as a dynamic hot-spot for global supply chain reshuffling, successfully balancing its relationships with the US, EU, and China while prioritizing domestic industrialization and value-added growth. Indonesia’s abundant resources and growing manufacturing sector present major opportunities for international trade partners in 2025 and beyond.
Indonesia is rapidly positioning itself as an alternative to China for multinational supply chains, leveraging its extensive ports, well-developed logistics infrastructure, and proximity to key Asian consumer markets such as China, India, and Australia. With competitive skilled labor costs and over 275 million residents, Indonesia is Southeast Asia’s largest economy and the largest manufacturing base, comprising nearly 20% of national GDP. The country is shifting away from raw-material export and instead capturing value by requiring domestic processing prior to export, especially in nickel, cobalt, copper, bauxite, and tin.
Strategic Advantages & Resource Wealth
Indonesia is the world’s leading producer or holds second-largest deposits of nickel, cobalt, bauxite, copper, tin, and rubber, providing “fuel” for traditional manufacturing and the increasing global dependence on green tech. Nickel refining, copper processing, EV battery production, automotive, electronics, and food processing are designated priority sectors under Indonesia’s “Making Indonesia 4.0” industry roadmap. Special Economic Zones (SEZs) and ambitious incentives attract billions of foreign direct investment, propelling the value chain downstream.
Manufacturing and Distribution Hub
Major industrial clusters in Jakarta, West Java, and Banten host automotive, electronics, food, and metal processing plants. SEZs and integrated port infrastructure have made Indonesia a distribution hub for intra-ASEAN, China, and global markets, with manufactured goods accounting for over 70% of exports. Logistics and supply chain modernization, with adoption of AI and automation, position Indonesia as a scalable option for diversified global sourcing.
Key Trade Agreements
- IEU-CEPA (Indonesia – EU Comprehensive Economic Partnership Agreement): Signed in September 2025, eliminates import duties on over 90% of goods traded and phases out duties on cars, machinery, chemicals, and pharmaceuticals within five years. The agreement will double Indonesia-EU trade by 2030 and create new opportunities amid US-China trade tensions.
- China-Indonesia Partnership: Deep economic integration since normalization in 1990 and BRI designation in 2013. China is Indonesia’s largest trading partner, investing in minerals, manufacturing, and digital infrastructure. Indonesia provides critical minerals, notably ferroalloys, copper, and nickel for China’s manufacturing sector.
- US-Indonesia Reciprocal Trade Deal (2025): Announced by President Trump, implements a reciprocal 19% tariff rate, eliminates more than 99% of Indonesia’s tariff barriers for US products, and removes major non-tariff barriers. The agreement enhances agricultural, chemical, and digital trade, and secures rules of origin and supply chain cooperation.
Opportunities & Constraints
Indonesia’s prominence in minerals and resource processing makes it vital for supply chain diversification, especially for the EV, electronics, and green energy sectors. Its combination of scale, resources, skilled labor, and regulatory reform outpaces Vietnam or Malaysia’s options for certain industries. Challenges persist, especially logistical bottlenecks, skills shortages, and ESG risks. Catastrophic events like the recent Grasberg mudslide highlight the instability of minerals’ supply, impacting global copper prices and supply chain resiliency.
Geopolitical Dynamics and Industrial Policy
Indonesia is actively shifting policy to maximize domestic industrialization, reducing exports of raw ore and strengthening processing capacity, while offering foreign investors incentives including tax reductions in SEZs and streamlined licensing procedures. The balancing act between benefiting from relationships with the US, EU, and China, while retaining high standards for sustainability and industrialization, defines Indonesia’s ambitions through 2030.
Conclusion
Indonesia offers significant opportunities for global supply chain relocation, supported by robust trade deals, abundant resources, and a pivot toward high-value manufacturing. Nonetheless, firms must carefully manage logistical, regulatory, and ESG risks to maximize the benefits of diversifying into Indonesia’s evolving supply chain landscape. Reach out to Peacock Tariff Consulting to discuss how your business can take advantage of Indonesia’s rapid growth.