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Indonesia: Macro Impact from US Reciprocal Tariffs
Indonesia’s trade surplus with the US almost quadrupled since 2010, reaching its peak of USD16.6bn in 2022 and has since narrowed to USD14.2bn in 2024. Last year, Indonesia exported a total of USD26.3bn worth of goods to the US.
Pragmatically, we are of the view that the sweeping tariff treatment globally by the US is to bring countries to the negotiation table to improve US’ terms-of-trade positions. This stands out in the case of Indonesia who only has less than 10% of its total exports to the US and Indonesia ranked close to the bottom of relative trading partner to the US but was charged a whopping 32% reciprocal tariff rate.
However, we are cognizant of the adverse ramifications that US reciprocal tariffs can bring about to Indonesia’s already dimming near-term growth prospects. Palm oil and derivatives, footwear products, low-value electrical apparatus, apparel, and furniture (altogether account for 51% of total surplus with the US) are sectors that will bear significant downside risks of lower exports revenue. These top 10 exports product accounted for a mere 3.4% of Indonesia’s total exports to the world.
In conclusion, though data suggests a relatively manageable exposure of Indonesia’s exports with respect to the US reciprocal tariff, the ripple effects from other larger and export-oriented trading economies subjected to such tariffs, especially China, would likely have some bearings on Indonesia’s economic growth prospects (current forecast of 5.2% will be reviewed after 1Q25 GDP data is released in May). This will also affect our forecast for BI to lower its benchmark rate by a greater extent (will be reviewed post 23 Apr MPC).
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Enrico Tanuwidjaja
Economist
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