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On 2 April 2025, United States President Donald Trump announced that his government would impose a universal 10% tariff. This policy will be followed by specific tariff arrangements for commodities from approximately 60 countries perceived to be engaging in unfair trading practices through non-tariff barriers, which, he says, have caused the US balance of trade to be in deficit.
The policy is part of Trump’s “Make America Great Again” initiative, which he used to rally domestic support to win a second term. His administration described the day the policy was announced as “Liberation Day”, to the chagrin of the global community.
Trump’s ‘Liberation Day” is clearly an attack on globalisation. To quote Elizabeth Braw, writing last year, Trump’s first term and Brexit were the most significant political pushbacks against globalisation since the World Trade Organisation protests in 1999. Her assessment remains relevant today under Trump 2.0.
Negotiation, not retaliation
The US new tariff regime has elicited a range of responses globally. Some countries, including China, Brazil, Canada, Mexico, and the European Union, have decided to retaliate against Trump’s policies, saying his measures will harm their domestic industries.
In contrast, other nations such as Australia, South Korea, Japan, and India, and ASEAN members like Singapore and Malaysia, have chosen to initiate negotiations with the US government. On April 6, 2025, the Indonesian Coordinating Ministry for Economic Affairs made it clear that Indonesia, too, aims to engage in diplomacy and negotiations with the US instead of resorting to retaliatory measures.
There are at least four reasons why Jakarta cannot afford to engage in a protracted trade war with Washington.
First, any restrictions on Indonesian goods in the US market would negatively affect local producers. The US is Indonesia’s second-largest export market, after China, making it crucial to the country’s economy. The Observatory of Economic Complexity reports, for example, that between January 2024 and January 2025, Indonesian exports to the US rose by $ 559 million (26.6%), growing from $ 2.08 billion to $ 2.64 billion. Key exports included palm oil and leather footwear but the most notable increase came from exports of cocoa butter, semiconductor devices and rubber, indicating strong dependence by the US market on these commodities.
Second, according to the United States Trade Representative’s 2025 National Trade Estimate (USTR NTE, an annual report detailing trade regulations and practices of US trading partners) Indonesia not only imposes tariffs beyond what the WTO permits for certain products but is also notorious for its non-tariff barriers. These include complex and burdensome licensing regimes for importing horticultural products, qualitative restrictions on agricultural products, and market access restrictions for pharmaceutical products, among others. As the US government argues in the report, the trade imbalance between the two countries justifies the establishment of a new tariff regime. In other words, there is a pressing need for domestic reform of Indonesia’s non-tariff protectionist measures.
Third, diplomatic efforts and negotiations recognise that even though the Trump administration’s tariff regulations were unprecedented in their scope, essential minerals — such as rare earth elements, cobalt, lithium, copper, and other strategic resources for renewable energy — were excluded. These exemptions afford Indonesia the opportunity to strategically navigate the tariffs. The Indonesian government can pinpoint the exempt commodities and products that it is capable of supplying.
Fourth, the Indonesian government’s non-retaliatory approach is influenced by long-term relationships and geopolitical considerations involving Indonesia and the US. The reality is that Indonesia needs the US to balance China’s influence in the region, just as it requires China for similar reasons. By maintaining strong trade relations with both superpowers, Indonesia can enhance its bargaining position not only in dealings with these two powers but also with the rest of the world.
Moreover, there is a limit to America’s new economic nationalism in the contemporary interconnected global political arena. Given the world is characterised by interdependence tangled within complicated global supply chains, restrictions on international trade will ultimately hurt the US’s own economic and technological systems. Therefore, Trump’s policies can also be understood as a strategy to increase his country’s economic bargaining power. This requires diplomacy and negotiation, as engaging in retaliation could easily worsen and escalate a trade war that would be detrimental to the global political economy.
Bracing for the worse
The problem is that a measured response may not be enough to protect Indonesia’s interests. While Indonesia has chosen to negotiate with the world’s largest economy, it must prepare itself for contingencies in a volatile geopolitical environment.
In fact, no one can predict what will happen next. Trump’s tariff policy has been criticised as erratic, with delays in implementation and shifts in applicable rates making predictions about his policies challenging.
Therefore, although responding through negotiation appears to the more favourable option for the Indonesian government in the short term, it must also be ready in case diplomacy fails. The Indonesian government must take concrete steps to mitigate harm and support domestic industries that may be affected by the tariff policies.
It may also need to prepare for litigation through the WTO dispute settlement mechanism. To do this, it must strengthen ties with regional partners, whether through ASEAN or the Regional Comprehensive Economic Partnership (RCEP). As mentioned, the Malaysian and Singaporean governments have responded to Trump’s policies in much the same way as Indonesia, and this creates a strong foundation for coordination and potential joint actions.
Finally, Trump’s policies may also force the Indonesian government to enhance the country’s economic performance by removing the non-tariff barriers the US complains about, reducing its dependence on the US market, investing more heavily in domestic processing, and even by promoting a circular economy.
If any of these things happen, then maybe there will be bright side to Trump’s trade war, after all.
