Stung by a threatened 32 percent tariff on goods exported to the United States from Indonesia, the government in Jakarta says it will increase its imports of crude oil and liquefied petroleum gas (LPG) from the US by around US$10 billion, Energy Minister Bahlil Lahadalia told local media, as a delegation of ministers and high-ranking officials including Minister of Foreign Affairs Sugiono, Minister of Finance Sri Mulyani Indrawati and Chairman of the Financial Services Authority Mahendra Siregar rushes to Washington, DC for April 16-23 talks.
Indonesia joins as many as 75 countries seeking to negotiate trade deals, Trump officials have said, and economic adviser Kevin Hassett told the US Fox television network that there are now “offers on the table” with 15, although he declined to specify which, and that negotiations are “moving fast.”
The US tariffs imposed on Indonesia, which are due to go into effect when the current 90-day suspension expires, are well above the 10 percent baseline applied against regional neighbors Singapore, Malaysia, and the Philippines. Although the Indonesian House of Representatives commission overseeing the mining and energy sectors announced its support for the government’s plan to increase imports of US oil and gas to address the trade imbalance with the US, the taxes run a high risk of politically alienating the biggest country in the ASEAN region.
Whatever the economics, which analysts almost unanimously agree are doubtful, the politics are more so. Indonesia is a country that successive US governments have sought to woo in the campaign to preserve American hegemony over the South China Sea in the face of a broad diplomatic and military onslaught by China, which claims almost the entire sea. Chinese President Xi Jinping, himself smarting from the global tariff war started by Trump, is visiting Vietnam, Malaysia, and Cambodia this week offering succor to countries equally hit by high tariffs.
Although Xi isn’t visiting Indonesia on this swing through ASEAN countries, President Prabowo Subianto has already stirred concern in the west with a statement last November appearing to acknowledge China’s overlapping claims in the South China Sea, which some analysts interpreted as an endorsement of Beijing’s controversial nine-dash claims of ownership. The Foreign Ministry hastened to back away from the statement.
Even before he was inaugurated, Prabowo was given a red-carpet welcome in Beijing, and China has been an extensive investor in Indonesia, both private, in resource extraction industries, and public through its trillion-dollar Belt and Road Initiative. After becoming president last October 20, Prabowo signed for US$10 billion in low-cost loans to add to the US$22 billion Indonesia already owes China. The new loans are apparently for infrastructure, green energy, digital technology, and agriculture. Earlier borrowings were mainly for road and rail upgrades and new transport projects like the high-speed rail from Jakarta to Bandung, which went vastly over budget.
The Indonesian government has traditionally sought to remain non-aligned, and its haste to knuckle under to Trump’s tariff demands makes it appear the palace in Jakarta isn’t rejecting its ties to the west, which would be painful given its trade linkages, which it wishes to increase. The government will also act to reduce taxes on US steel, mining products and health equipment. Further plans are said to include reducing taxes on imported electronics, mobile phones, and laptops to 0.5 percent from 2.5 percent. In all, officials said, Indonesia plans to buy US goods worth $18 billion to $19 billion as it seeks to eliminate its trade surplus.
Indonesia has long run a healthy trade balance with the US, with just US$10.2 billion in US goods exports to Indonesia against US$28.1 billion in goods exports to the US The trade deficit with Indonesia increased by 5.4 percent in 2023, putting Jakarta in Washington’s line of fire over the deficit. Major US-bound exports include palm oil, electrical machinery and equipment, including broadcasting equipment, and textiles, footwear and machinery. Other exports include organic chemicals, toys, games, sports requisites, and tobacco.
Indonesia maintains tariffs of 35.5 percent on most non-agricultural goods although cars and steel face higher rates. Recent regulations have imposed new tariffs on items like perfumes, hair products, iron and steel, bicycles, and wristwatches. Indonesia has also applied tariffs exceeding WTO-bound rates on certain Information and Communication Technology products, particularly in categories like switching and routing equipment and computer servers.
The tariffs pose a serious risk to Indonesia’s trade-driven sectors, given the country’s integration into global value chains and its reliance on the US market for specific goods. They also come at a time when the country’s economy is gasping for breath, plagued by steeply climbing state debt and spooked by erratic economic policies pushed by Prabowo. Officials have had to suspend trading twice on the Jakarta Composite Index in recent weeks after shares plummeted. Exports are expected to suffer not just from the US tariff threat but also from the continuing economic slowdown in China, its biggest trading partner, which may face a deepening crisis from 145 percent tariffs the US has placed on all Chinese goods.
“Increasing crude oil and LPG imports from the US will balance trade between Indonesia and the US, facilitating Indonesia’s tariff negotiations,” said Bambang Patijaya, chairman of the parliament’s Commission XII, in a written statement.
Minister of Energy and Mineral Resources Bahlil told local media that US crude currently contributes 4 percent of Indonesia’s total oil imports, with US LPG accounting for 54 percent of LPG imports. The US energy purchases could lead to higher costs for Indonesia in the long run, given high logistics and transportation costs. The country will need to cut LPG imports from other countries by up to 20 to 30 percent to meet the US demands.
