Responding to the 32% US Tariff: Indonesia's Next Steps
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On 2 April 2025, the US President, Donald Trump, announced a series of import tariffs, dubbed as “Liberation Day” tariff, aimed at reducing the US trade deficit and protecting domestic industries. is policy includes a baseline 10% tariff on all imports and higher, country-specific tariffs on 57 nations, with rates determined by the size of the trade deficit and other factors. Notably, Indonesian exports to the US have been subjected to a 32% tariff.
Although Indonesia was not a main target of the tariffs, their global impact has been considerable. These developments highlight the urgency for Indonesia to reevaluate its trade strategy in response to shifting US trade policy.
In this ARMA Update, we explore the implications of the US tariff measures, compare them with previous tariffs imposed, potential impact on Indonesia, and explore the strategic responses Indonesia in navigating these evolving challenges.
Old Tariff vs New Tariff
Prior to the imposition of the 32% import tariff by the US in April 2025, Indonesian exports to the US were generally subject to relatively low tariffs, ranging from 0% to 5%, depending on the product category and applicable trade preference schemes. However, President Donald Trump claimed that Indonesia had imposed tariffs of up to 64% on US goods, one of the reasons cited for the retaliatory 32% tariff on Indonesian products.
Potential Impact to Indonesia
This significant tariff hike has drastically increased the cost of Indonesian goods in the US market, particularly electronics, apparel, footwear and furniture. These industries are heavily reliant on the US market, with apparel exports to the US accounting for approximately 61.4% of Indonesia's total apparel exports, and footwear exports comprising about 33.8%. [1] The increased tariffs may render Indonesian products less competitive compared to those from countries like Vietnam, Cambodia, and China, potentially leading to a reduction in orders and production volumes.
According to the official website of the United States Trade Representative (“USTR”), Indonesia exported goods worth approximately USD 28.1 billion to the US in 2024. [2] Further, data from Statistics Indonesia (Badan Pusat Statistik – BPS) indicates that this resulted in a trade surplus of USD 16.8 billion, underscoring the US as Indonesia’s third-largest export destination. [3] However, the newly imposed tariffs pose a threat to this favourable trade balance. In response, the government has initiated diplomatic efforts and is exploring potential trade concessions, issues that will be further discussed below.
The Government of Indonesia Response
In response to the US impose tariffs, the Government of Indonesia provide a response during the 2025 Economic Forum (Sarasehan Ekonomi) held on 8 April 2025. The response reflects a strategic combination of diplomatic engagement, economic concessions, and regulatory reforms, aiming to mitigate adverse impacts while preserving and strengthening bilateral trade relations, key measure include:
- Diplomatic Engagement over Retaliation
Indonesia has opted not to retaliate with counter-tariffs. Instead, it is pursuing diplomatic channels to resolve trade tensions. A high-level delegation, led by the Coordinating Minister for Economic Affairs, is scheduled to visit Washington D.C. on 17 April 2025 to negotiate and seek mitigation of the imposed tariffs.
- Trade Concessions to US and Import Policy Adjustments
To demonstrate goodwill and maintain favourable trade relations with the United States, Indonesia has announced several trade concessions:
- Reduction of Import Duties on US Products – Import duties on US products such as steel, mining goods, and health equipment would be reduced from 5 - 10% to 0 - 5%.
- Lowering Tariffs on Electronics – Tariffs on electronics, including mobile phones and laptops from all countries, would be lowered from 2.5% to 0.5%.
- Increasing Imports from the US – Indonesia plans to increase imports of US products, including liquefied petroleum gas, liquefied natural gas, soybeans, and components for infrastructure projects, aiming to balance the trade deficit and ease tensions.
- Regulatory Reforms and Economic Deregulation
In response to the potential economic impact of the tariffs, Indonesia’s Finance Minister announced on 8 April 2025 that the government is implementing regulatory reforms to enhance economic efficiency and competitiveness:
- Administrative Improvements in Taxation, Customs, and Licensing Procedures – Efforts are underway to streamline tax audits, tax restitution processes, and licensing procedures, aiming to reduce the tariff burden by up to 2%. These reforms aim to address long-standing concerns, including those raised in the 2025 USTR National Trade Estimate Report (“USTR Report”) issued on 31 March 2025, such as overlapping licensing requirements and non-transparent, burdensome tax assessments.
- Relaxation of Local Content Requirement – Regulations concerning the Local Content Requirements (Tingkat Kandungan Dalam Negeri – TKDN) are being eased for US products, particularly in the Information and Communication Technology ("ICT") sector. The reform addresses concerns highlighted in the 2025 USTR Report, which noted that TKDN requirements hinder US firms from fully accessing Indonesia’s ICT market.
- Adjustment of Export Taxes on Crude Palm Oil ("CPO") – The government plans to adjust export taxes on crude palm oil to alleviate the burden on exporters affected by US tariffs, potentially reducing costs by approximately 5%.
- Economic Impact Assessment
Indonesia’s Finance Minister stated on 8 April 2025 that the US tariffs could potentially reduce Indonesia's GDP growth by 0.3 to 0.5 percentage points. However, on 9 April 2025, the US President Donald Trump announced a 90-day pause in the implementation of the tariffs, providing a critical window for negotiations and mitigation strategies.
- Implementation Timeline and Future Outlook
While specific implementing regulations are pending, the government is actively engaging in discussions and planning to formalize these measures promptly. The outcomes of the upcoming negotiations in Washington D.C, will likely influence the finalization and implementation of these policies.
Bhima Yudhistira, Executive Director of the Center of Economics and Law Studies (CELIOS), in a statement dated 3 April 2025, as reported in https://nasional.kontan.co.id/news/trump-tetapkan-tarif-impor-32-untuk-ri-sektor-otomotif-hingga-elektronik-terancam. ↩︎
Office of the United States Trade Representative, “Indonesia,” accessed April 2025, https://ustr.gov/countries-regions/southeast-asia-pacific/indonesia. ↩︎
Statistics Indonesia (Badan Pusat Statistik – BPS), “Indonesia’s International Trade Performance 2024,” accessed April 2025, https://www.bps.go.id. ↩︎
Disclaimer:
This client update is the property of ARMA Law and intended for providing general information and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. ARMA Law has no intention to provide a specific legal advice with regard to this client update.
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