Indonesia and US Ink Major Trade Agreement
The U.S. and Indonesia have finalized a Reciprocal Trade Agreement, a move seen as a quiet reordering of economic relations in the region. The deal could shift APAC supply chain dynamics and influence regional standards on tariffs and non-tariff barriers, potentially impacting how Thai exporters structure deals.
The trade agreement caps U.S. tariffs on Indonesian goods at 19%, a significant reduction from a threatened 32% hike under the "Liberation Day" trade policy. In exchange, Indonesia will eliminate tariffs on over 99% of U.S. products and has committed to purchasing $15 billion in U.S. energy, $4.5 billion in agricultural goods, and 50 Boeing aircraft. This deal gives Indonesia the lowest negotiated U.S. tariff rate in ASEAN, positioning it more favorably than regional competitors like Vietnam, the Philippines, and Malaysia, which have accepted rates between 20-25%. For context, total goods trade between the two nations was over $39 billion in 2024, with a significant trade deficit of about $18 billion in Indonesia's favor. Key U.S. exports to Indonesia include mineral fuels, oil seeds, machinery, and electrical equipment. Major U.S. imports from Indonesia are varied, encompassing electrical machinery, footwear, apparel, palm oil, and furniture. The new agreement aims to address non-tariff barriers by exempting U.S. goods from local content requirements and streamlining import licensing for agricultural products. The agreement also includes provisions for Indonesia to remove export restrictions on industrial commodities, including critical minerals, and to cooperate on supply chain resilience. Additionally, Indonesia has committed to adopting a forced labor import ban and strengthening labor rights. This trade pact is a key part of President Prabowo Subianto's broader economic strategy, which targets 8% annual growth by 2029 through increased investment and exports.
