Background and Strategic Importance
The United States and Indonesia have long maintained a complex trade relationship. Indonesia, Southeast Asia’s largest economy, is a critical partner for Washington’s Indo-Pacific strategy. With a population of over 270 million and a rapidly growing middle class, Indonesia represents both a major export market and a strategic counterweight to China’s influence in the region.
If the U.S.-Indonesia trade deal stalls or collapses, exposure for U.S. SMEs will concentrate in agriculture (oilseeds, cereals, animal feed), energy inputs (refined fuels), capital goods (machinery, electrical equipment), aerospace, chemicals, and select consumer goods. In 2024, U.S. exports to Indonesia totaled about $10.2B, led by mineral fuels ($1.63B), oilseeds ($1.26B), machinery ($1.11B), organic chemicals ($915M), animal feed ($618M), aerospace ($523M), and electrical equipment ($438M). These categories define the highest-risk SME cohorts for renewed or higher tariffs and non-tariff barriers if the agreement falters.
The proposed trade deal first outlined in mid-2025 was designed to:
- Lower tariffs on Indonesian exports such as textiles, footwear, palm oil derivatives, and electronics.
- Open Indonesia’s market to more U.S. agricultural products (soybeans, wheat, beef), energy exports (LNG, coal alternatives), and manufactured goods (aviation, machinery).
- Address digital trade and e-commerce rules, ensuring U.S. tech companies gain fairer access to Indonesia’s fast-growing online economy.
- Strengthen supply chain resilience, reducing dependence on China by diversifying U.S. sourcing and investment into Indonesia.
For Washington, the deal was not just about economics it was about geopolitical positioning. For Jakarta, it was about balancing relations between the U.S. and China while securing better access to American markets.
Current Tensions and Why the Deal Is Faltering
Despite initial optimism, negotiations have soured. Several flashpoints have emerged:
1. Non-Tariff Barriers
- The U.S. insists Indonesia must dismantle restrictive licensing rules, local content requirements, and opaque customs procedures.
- Indonesia argues these measures protect domestic industries and jobs, and removing them could spark political backlash.
2. Binding vs. Nonbinding Commitments
- Washington wants legally enforceable commitments, particularly on digital trade and intellectual property.
- Jakarta prefers nonbinding agreements, citing sovereignty concerns and flexibility in policymaking.
3. The “China Clause”
- The U.S. has proposed a “poison pill” clause: if Indonesia signs a similar trade deal with China, Washington could withdraw from the agreement.
- Indonesia views this as an infringement on its right to pursue independent trade policy.
4. Agricultural Market Access
- U.S. farmers want guaranteed quotas for soybeans, corn, and beef.
- Indonesia fears flooding its market with U.S. agricultural imports could undermine local farmers and food security.
5. Environmental and Labor Standards
- The U.S. has pushed for stronger environmental protections and labor rights.
- Indonesia counters that such standards could raise costs for SMEs and reduce competitiveness.
Economic Stakes
For the U.S.:
- Agriculture: Soybean and wheat exporters see Indonesia as a growth market. Without the deal, they face tariffs of 5–10%.
- Energy: U.S. LNG exporters want to secure long-term contracts as Indonesia transitions away from coal.
- Technology: U.S. firms like Amazon, Google, and Microsoft want clearer rules on data localization and e-commerce.
For Indonesia:
- Textiles and Footwear: These industries rely heavily on exports to the U.S. Tariffs could erode competitiveness against Vietnam and Bangladesh.
- Palm Oil Derivatives: Indonesia wants greater access to U.S. markets, but faces environmental opposition.
- SMEs: Many Indonesian SMEs hope for easier access to U.S. buyers but fear being overwhelmed by American imports.
| Sector | 2024 U.S. export value to Indonesia | Typical SME product examples | Core HS codes | Primary tariff risk driver |
| Mineral fuels (refined products) | $1.63B | Refined fuels: diesel blends, lubricants; Additives | HS 27 | Tariff reversion; licensing and pre-shipment verifications |
| Oilseeds & grains | $1.26B | Soybeans, corn, seeds: bulk and specialty | HS 12, HS 10 | Commodity balance/licensing, quota re-tightening |
| Machinery & industrial equipment | $1.11B | Pumps, compressors, boilers, parts | HS 84 | Local content rules, conformity assessments |
| Organic chemicals | $915M | Solvents, intermediates, specialty chemicals | HS 29 | Technical approvals, labeling, import licensing |
| Animal feed & residues | $618M | DDGS, soybean meal, pet food inputs | HS 23 | SPS documentation, commodity balance regimes |
| Aerospace | $523M | Aircraft parts, MRO components | HS 88 | Certification acceptance, safety documentation |
| Electrical equipment | $438M | Motors, switchgear, cables | HS 85 | Standards conformity, inspections, data compliance |
Why these sectors rank highest
- Export concentration: These categories constitute the bulk of U.S. sales to Indonesia, amplifying tariff shock if preferences lapse.
- Non-tariff sensitivity: Indonesia’s past use of import licensing, commodity balance policies, and conformity assessments disproportionately affects agriculture, industrial goods, and digital-adjacent products.
- Simulated losses under tariff increases: Modeling of heightened U.S.-ASEAN tariff regimes shows large contractions in electronics-related trade and agri-fats; while directional, it underscores how standards and duty changes propagate through exposed product lines.
- Policy volatility: Retail and SME voices in Indonesia signal selective tolerance for reciprocal tariffs while emphasizing competition dynamics with China, indicating uneven impacts across categories.
Segmented SME exposure lists by industry
Agriculture and food inputs
- Oilseeds and grains (soybeans, corn):
- Exposure mode: Licensing/commodity balance reinstatement; SPS documentation tightening; duty increases on bulk shipments.
- SME profiles: Grain co-ops, specialty seed exporters, feed ingredient suppliers, brokers.
- Key data fields to capture: Published export manager email; terminal logistics; HS lines (HS 12, HS 10); average shipment size; Indonesia buyer segments; current licensing pathways.
- Risk note: Potential tariff range reinstatement in mid-single to low-double digits plus procedural delays, impacting cash cycles.
- Animal feed and residues (DDGS, soybean meal):
- Exposure mode: SPS certifications, commodity balance; labeling.
- SME profiles: Mid-size feed mills, DDGS aggregators, pet nutrition input suppliers.
- Key data fields: HS 23 line; facility certifications; Indonesian FFPO status where applicable; published QA contacts.
Energy and petroleum-derived products
- Refined fuels, lubricants, additives:
- Exposure mode: Tariff reversion; import licensing; pre-shipment inspection.
- SME profiles: Regional refiners, blenders, additive formulators, distribution SMEs.
- Key data fields: HS 27 product specifics; licensing history; inspection vendors; Indonesia importer relationships.
Industrial machinery and electrical equipment
- Machinery (HS 84) and electrical (HS 85):
- Exposure mode: Local content and conformity; removal of preferential acceptance of U.S. standards; potential pre-shipment verifications.
- SME profiles: OEMs under $250M revenue, component makers, retrofit/parts suppliers, integrators.
- Key data fields: Standards certifications; Indonesia SNI/acceptance status; published technical sales contacts; warranty/aftermarket terms.
Chemicals and specialty inputs
- Organic chemicals (HS 29):
- Exposure mode: Labeling, registration, licensing; tariff reversion on intermediates.
- SME profiles: Specialty chemical formulators, solvent makers, toll manufacturers.
- Key data fields: CAS portfolios; Indonesia regulatory filings; published regulatory affairs contacts.
Aerospace (parts and MRO)
- Aircraft parts (HS 88):
- Exposure mode: Certification acceptances; documentation standards; duty on parts.
- SME profiles: FAA-certified parts suppliers, MRO component SMEs, avionics shops.
- Key data fields: Spec sheets; certification equivalence; published compliance contacts; Indonesia buyer programs.
Geographic concentration of exposed U.S. SMEs
- Midwest and Plains (agriculture/feed):
- Focus: Soybeans, corn, DDGS; rail and river export chains.
- Exposure: Licensing, SPS, commodity balance; bulk duty changes.
- Note: High sensitivity to shipment timing and documentation windows.
- Gulf Coast and Mid-Atlantic (energy/refined products):
- Focus: Refined fuels, lubricants; marine exports.
- Exposure: Licensing and inspection, duty swings on HS 27 lines; customs processing variability.
- West Coast and Great Lakes (industrial/electrical/chemicals):
- Focus: Machinery/electrical OEMs, specialty chemicals; containerized shipments.
- Exposure: Standards acceptance changes; labeling and conformity assessments; potential inspection reinstatement.
- Aerospace clusters (Pacific Northwest, Southwest):
- Focus: Aircraft parts, avionics, MRO components.
- Exposure: Certification and documentation; duty on parts; buyer program continuity.
Buyer segments in Indonesia that drive exposure
- Agribulk importers and feed integrators: Revert to licensing and quota management; price elasticity impacts SME margins.
- Industrial distributors and EPCs: Re-tighten local content and conformity; prefer ASEAN-aligned standards if U.S. acceptance lapses.
- Retail and e-commerce channels: Mixed sensitivity to reciprocal tariffs; competitive posture relative to China shapes SKU selection.
- Airlines and MROs: Documentation and certification continuity critical; delays ripple through maintenance schedules.
Geopolitical Context
The deal is not happening in a vacuum it’s part of a larger U.S.-China rivalry in Southeast Asia.
- China’s Belt and Road Initiative (BRI) has poured billions into Indonesian infrastructure, including railways, ports, and energy projects.
- Indonesia’s balancing act: Jakarta wants U.S. investment but cannot afford to alienate Beijing, its largest trading partner.
- Regional dynamics: Other ASEAN nations (Vietnam, Thailand, Malaysia) are watching closely. If the deal collapses, it could signal U.S. unreliability in trade commitments.
Possible Scenarios
Scenario 1: Deal Salvaged with Compromises
- Indonesia agrees to partial reforms on non-tariff barriers.
- The U.S. softens the “China clause” into a consultation mechanism.
- Both sides declare victory, but implementation remains shaky.
Scenario 2: Deal Collapses
- Negotiations stall, and Washington withdraws.
- Indonesia deepens trade ties with China, possibly signing a bilateral deal.
- U.S. exporters lose market share, while China cements dominance in Southeast Asia.
Scenario 3: Mini-Deal or Sectoral Agreement
- Instead of a full trade pact, both sides agree on limited deals (e.g., agriculture, digital trade).
- This avoids collapse but falls short of strategic ambitions.
Implications for SMEs and Global Supply Chains
For SMEs in North America, especially those in agriculture, manufacturing, and technology, the collapse of the deal would mean:
- Higher tariffs when exporting to Indonesia.
- Lost opportunities in a fast-growing consumer market.
- Greater competition from Chinese firms already entrenched in Indonesia.
For Indonesian SMEs, failure of the deal could:
- Limit access to U.S. buyers and investors.
- Increase reliance on Chinese supply chains.
- Reduce bargaining power in future trade negotiations.
Conclusion
The U.S.-Indonesia trade deal is at a critical crossroads. What began as a promising framework for deeper economic and strategic cooperation now risks unraveling due to disputes over sovereignty, binding commitments, and geopolitical rivalry.
If salvaged, the deal could reshape trade flows and strengthen U.S. presence in Southeast Asia. If it collapses, it will reinforce China’s dominance and leave both U.S. and Indonesian SMEs facing renewed uncertainty.
The next few months will determine whether this agreement becomes a cornerstone of U.S.-ASEAN relations or another casualty of great power competition.