On April 2, 2025, U.S. President Donald Trump announced a significant set of tariffs targeting imports from around 90 countries, including Indonesia. These tariffs, aimed at reducing the trade deficit and increasing U.S. revenue, have caused market turmoil worldwide. Indonesia, which has a $17.9 billion trade surplus with the U.S., is now facing potential economic setbacks, including a stronger dollar, slower growth, and increased pressure on its currency, the rupiah. This move adds to Indonesia’s economic challenges, as the country grapples with foreign debt obligations and market volatility.
The Impact of US Tariffs on Global Markets
The announcement of the new tariffs, referred to as the “Liberation Day” measures, set off a chain reaction in the global markets. By April 3, major U.S. stock indices, including the Dow, S&P 500, and Nasdaq, experienced severe drops. The Dow Jones Industrial Average alone fell over 2,200 points, marking the start of what has now been called the 2025 stock market crash.
This sharp decline in U.S. stock markets quickly spilled over into global exchanges. In China, stock indexes in Shanghai and Shenzhen plunged on April 7, though they recovered slightly with state intervention. Meanwhile, Indonesia’s stock market, which was closed due to the Eid holiday, reopened to an 8% drop on April 8, with continued volatility threatening economic stability.
Tariff Tensions Between the US and Indonesia
The U.S. tariffs have escalated trade tensions, especially since Indonesia has enjoyed a trade surplus with the U.S. The Trump administration’s decision to impose a 32% tariff on Indonesian goods, despite the existence of a 1996 Trade and Investment Framework Agreement (TIFA), highlights ongoing disagreements over trade policies. The U.S. Trade Representative’s 2024 National Trade Estimate Report cited concerns about Indonesia’s regulations on imports, technical barriers, and intellectual property protections, further complicating the trade relationship.
For example, Indonesia’s requirement that all government credit card transactions go through its National Payment Gateway has raised concerns. This mandate complicates cross-border financial transactions and has drawn criticism from global financial institutions.
Economic Ramifications for Indonesia: Indonesia’s economy, already facing challenges such as foreign debt obligations, is now at risk of further complications due to the U.S. tariffs. The impact could reduce the availability of U.S. dollars in Indonesia, creating additional strain on the rupiah. Analysts predict that the exchange rate could drop to Rp 17,000 per U.S. dollar by mid-year, with the possibility of reaching Rp 18,000 by the end of 2025.
The situation is exacerbated by reduced government spending and a decline in investor confidence, despite recent efforts to stabilize the economy, such as the launch of the Danantara sovereign wealth fund. A slowdown in exports and increased trade barriers could further hinder economic growth.
Indonesia’s Strategy to Navigate Economic Uncertainty
To weather this economic storm, Indonesia must adopt a multifaceted strategy to address the challenges brought on by the U.S. tariffs:
- Reducing Trade Barriers: Indonesia can work on reducing trade barriers, particularly those that affect its relationship with the U.S., while seeking to expand access to other international markets. Strengthening trade ties with countries in Asia, Europe, and beyond will be crucial for stabilizing the trade balance.
- Diversifying Export Markets: By reducing dependency on U.S. markets, Indonesia can mitigate the impact of these tariffs. Expanding exports to other high-growth regions, such as Southeast Asia, India, and Africa, could help balance the trade deficit and reduce exposure to U.S. policy changes.
- Continued Fiscal Reforms: Indonesia must continue to implement fiscal reforms to ensure long-term economic stability. The recent spending cuts, authorized by Presidential Decree No. 1 of 2025, are a start, but further adjustments may be necessary to maintain macroeconomic equilibrium.
- Learning from China’s Response: Indonesia could take lessons from China’s response to similar economic pressures. By increasing state-owned enterprise investments in the stock market and boosting domestic equity holdings, Indonesia could strengthen investor confidence and support its currency, the rupiah.
As global power dynamics shift, trade is increasingly being used as a tool of statecraft, and Indonesia must remain agile in navigating this complex landscape. The U.S. tariffs, while aimed at addressing trade imbalances, present significant risks for Indonesia’s economic future. However, by diversifying export markets, reducing trade barriers, and implementing sound fiscal policies, Indonesia can take proactive steps to mitigate the impact of these external pressures. The coming months will be critical in determining whether Indonesia can successfully adapt to the evolving global economic environment.
