What the Weak Must Suffer: Indonesia’s High-Cost Trade Deal with the U.S.
University students hold a demonstration against the trade deal with the US and the policies of President Prabowo Subianto, in Jakarta on 28 July 2025. | Photo by Aditya IRAWAN / AFP
In an article by Fulcrum, Maria Monica Wihardja and Siwage Dharma Negara assert that fast trade deal with the United States is not necessarily a good deal if Indonesia strikes an unequal trade bargain to avoid higher tariffs.
The Indonesian government has argued that, besides market access to the US, securing a lower tariff rate than that of its neighbours could incentivise investors to relocate their investments to Indonesia. Vietnam has been under the spotlight for being a transshipment hub for Chinese manufacturers. Vietnam’s foreign value added for exported goods is high relative to others in ASEAN (that is, Indonesia, Malaysia, Philippines, and Thailand) at 51.7 per cent; most of Vietnam’s foreign value added comes from China (42.5 per cent).
Nonetheless, lower tariffs will not automatically make investors want to come to Indonesia, since other factors like productivity and a sound regulatory environment are more critical. Further, using more granular industrial data, it is clear that specific products exported to the US differ across ASEAN countries. This means that tariff differentials might not necessarily bring immediate benefits for Indonesia from export or investment diversions.
For President Prabowo, the ‘deal’ might earn some short-term political benefits but domestically, the public is divided. Some stakeholders see an opportunity to catalyse reforms in Indonesia’s investment and trade regulation, including easing non-tariff measures such as local content requirements. Others see it as weak leadership surrendering to external pressure and jeopardising national interests, including invalidating some of Indonesia’s long-held positions on issues like personal data protection and data sovereignty. The business community has mixed views, but is generally optimistic with some caution.
