On July 15, President Trump turned to social media to announce a new trade agreement between the United States and Indonesia. The agreement, the third trade deal the U.S. administration has announced since the announcement of the “Liberation Day” tariffs, establishes a 19% duty on Indonesian imports to the United States, while U.S. goods will enjoy duty-free access to Indonesian markets including a potential non-tariff barrier elimination. The announcement also discloses that Indonesia has committed to purchasing certain American products as part of the agreement. Many details still remain to be confirmed.
Background
Under the “Liberation Day” tariffs announced in April, Indonesian goods were subject to a 32% duty, though these tariffs were postponed until August 1, with a 10% baseline rate applying in the interim. The agreement comes despite President Trump’s statement a week earlier that any country participating in the BRICS, of which Indonesia is the newest member, will be charged an additional 10% tariff with no exceptions. Indonesia’s agreement with the United States also comes on the heels of news that it had concluded a “political agreement” with the European Union toward a free trade deal, the culmination of a decade of negotiations.
According to the latest World Bank data, the United States is the second largest market (after China) for Indonesian exports and is a significant importer of footwear and apparel from Indonesia. Historically, Indonesia’s reliance on U.S. goods has been less significant; Indonesia ranks behind countries like the Dominican Republic in the total value of U.S. goods imported, despite being 25 larger by population than the Caribbean nation.
Takeaways
Although certain specifics of the deal remain to be finalized, the following key terms included in the announcement are worth attention:
- Tariffs: As indicated above, Indonesian imports into the United States will be subject to a 19% duty, while U.S. imports into Indonesia will be duty-free. These terms are broadly in line with those announced last week regarding the U.S. trade deal with Vietnam.
- Non-tariff barrier: As announced, U.S. exports to Indonesia are expected to benefit from a non-tariff barrier-free arrangement, though implementation details remain unclear. In late June, Indonesia’s Ministry of Trade issued a new import policy framework aimed at deregulating and streamlining licensing for certain commodities. This applies broadly to imports from all countries, not just the U.S. The regulation is set to take effect on 19 August, but it’s uncertain whether further updates will follow in light of the recent announcement.
- Investment commitments: The announcement states that Indonesia has committed to purchasing $15 billion of U.S. energy products, $4.5 billion of U.S. agricultural products, as well as investments in U.S. aviation.
- Transshipments: Similar to the agreement between the United States and Vietnam, transshipment of goods from third countries through Indonesia is highlighted. The announcement states that, “If there is any Transshipment from a higher Tariff Country, then that Tariff will be added on to the Tariff that Indonesia is paying.”
Many specifics are yet to be confirmed, including the timeline for the implementation of the agreement, whether the tariffs will stack with other existing duties, as well as non-tariff barriers to market access such as import quotas and intellectual property protections. We will continue to monitor and report on developments.
