Jakarta – Even as Indonesia's lead negotiator intensified lobbying efforts for a lowering of America's reciprocal tariffs this week, analysts remain sceptical that talks will make headway even if Jakarta attempts to leverage the nation's rich mineral resources as a bargaining chip.
They said the US' apparently adamant rejections of Indonesia's proposals to balance trade were politically motivated, hence any offers, even ones offering economic benefits, will not make it budge.
Still, plans to meet with members of the Trump administration in Washington this week went on, with Coordinating Minister for Economic Affairs Airlangga Hartarto pressing on with negotiation meetings hours after a July 7 letter issued by US President Donald Trump left Indonesia's tariff rate unchanged at 32 per cent.
In a text reply to The Straits Times on the night of July 7, Mr Airlangga hinted that Indonesia would continue dialogue up to Aug 1, the latest tariff deadline set by the US. He did not elaborate.
Indonesia has offered to cut tariffs on US imports to near zero, especially for agricultural and industrial products, committed to buying US aircraft, procuring energy commodities such as natural gas, and opening up to the US investment opportunities in nickel and copper smelting. These proposals have not gone anywhere.
Analysts do not expect much to come out of the ongoing talks, given that there are other American political and domestic considerations.
Analyst Henry Pranoto said the tariff rates for Indonesia are largely motivated by Mr Trump's plan to bring manufacturing jobs back to the US.
"The higher tariffs are meant to offset the gap in the minimum wages between the US and developing countries," said Mr Henry, who works at a Jakarta-based investment bank.
Meanwhile, Dr Nasir Tamara, a former visiting senior research fellow at ISEAS – Yusof Ishak Institute, noted that Indonesia's recent entry into Brics – a grouping of countries that includes China and Russia – could also weigh on the negotiation process, as Mr Trump has threatened an additional 10 per cent tariff on those aligned with the "anti-American" grouping.
Still, officials are not giving up.
A government official who is familiar with the negotiations told ST that Jakarta is planning to dangle its rich, undeveloped rare earth elements reserve as a bargaining chip to reduce the tariff rate as the August deadline looms.
"Twenty days is not a lot of time, but we have two things that the US really wants. One of them is rare earth," said the official, who spoke on condition of anonymity.
He declined to provide further information on the second aspect that Indonesia was looking to leverage.
The official added that this would be Indonesia's third formal proposal to the US.
The Indonesia negotiation team had submitted in the second week of April a comprehensive letter to start the negotiations, following Mr Trump's Liberation Day tariff speech on April 2.
It was addressed to US Secretary of Commerce Howard Lutnick, containing a list of what Indonesia could do to balance trade and what the US could do in exchange.
In 2024, Indonesia ran a US$17.9 billion (S$22.9 billion) trade surplus with the US. In comparison, Vietnam's trade surplus was US$123 billion, Thailand's was US$45.6 billion, and Malaysia's stood at US$24.8 billion.
As the negotiations progressed, Indonesian officials told reporters that Indonesia would sign a US$34 billion pact with US business partners on July 7.
The deal purportedly included a pledge by Indonesian state oil and gas company Pertamina to buy significantly more fuel from the US, as well as the purchase of 75 Boeing aircraft by state-controlled airline Garuda Indonesia.
As part of the deal, Indonesia would also pledge to buy more agricultural products from the US such as soya bean, and its newly formed sovereign wealth fund would invest in the oil and gas sector in Alaska.
Meanwhile, US companies, such as Apple, would have easier access to sell telecommunications products in Indonesia. US firms would also have more opportunities to invest in nickel smelters to make raw materials to produce electric vehicle batteries.
But the expected signing of the July 7 pact did not happen.
According to observers, Indonesia's rare earth industry is relatively nascent and underdeveloped, but it has potential beyond its current stated reserve.
Jakarta is also looking to open up the industry by exploring rare earth mining permits.
Rare earth – used in high-tech, energy and defence applications including missiles – was previously deployed as a negotiating weapon by China, the world's top supplier, in its trade talks with Washington.
China – which controls 70 per cent of global rare earth production – restricted the export of some rare earth minerals on April 4, a move seen as part of its retaliatory measures against the US' tariff hikes that were announced that same month.
This affected ongoing trade talks between the two superpowers. Talks later resumed, and they reached a deal in June after China agreed to release the flow of rare earth shipments while the US lifted its export countermeasures over chips, jet engines and aerospace components.
Among the regions rich in rare earth in Indonesia are Humbang Hasundutan in North Sumatra province and Mamuju in West Sulawesi province.
The Mamuju mine has been touted to be the first in Indonesia that would get a rare earth mining permit from the government. It contains up to 6,000 parts per million of rare earth elements, which is roughly 0.6 per cent of the amount of earth mined.
Indonesia, however, has not done as much geochemical mapping, or exploration for rare earth as China or Australia, hence a full picture of its reserve is not available, Mr Fabby Tumiwa, executive director of the Institute for Essential Services Reform, a Jakarta think-tank, told ST.
But rare earths in Indonesia have also been found in tailings, or waste materials from mining operations.
Indonesia's state mining holding company Mining Industry Indonesia said on April 24 that it is working on a pilot project to extract and process rare earth elements found in the tin-mining waste produced by its subsidiary, PT Timah, in Tanjung Ular, Bangka Belitung province.
The company is seeking a foreign partner that has an advanced technology to help process monazite found in the tailings into mixed rare earth carbonate that can be further processed into pure rare earth oxides such as neodymium and praseodymium.
These two rare earth elements, if combined, would become the strongest permanent magnet that is used in electric vehicles, smartphones and military equipment.