Riandy Laksono – President Prabowo might have breathed a little easier after 15 July 2025. On that day, agreement was reached with the US to reduce tariffs for Indonesia to 19% – lower than the threatened 32% and seemingly more favourable than regional peers.
In fact, Indonesia was one of the only two nations in ASEAN to secure a deal before Trump's reciprocal tariffs took effect on 1 August 2025. The Coordinating Ministry for Economic Affairs (CMEA) heralded it as a 'huge win' at the time. It saw the deal as providing a much-needed boost to help Indonesia's struggling labour-intensive sectors gain an edge over competitors.
However, this initial elation soon vanished. Just two weeks later, on 31 July, President Trump unveiled the full list of his flagship reciprocal tariff rates and it became clear that Indonesia's advantage had evaporated. Key Southeast Asian competitors Cambodia, Malaysia, and Thailand, and other major labour-intensive powerhouses, like Bangladesh and Sri Lanka, are back on equal footing with Indonesia as they too face tariff rates ranging between 19% and 20%.
So, what to make of the Indonesia-US deal now that final tariff rates for other countries have started to take shape? Did Prabowo blink too soon? And more importantly, did Prabowo's administration carefully calculate the scale and implications of the US demands that accompanied the 'lower' tariff rate?
First mover (dis)advantage?
A deal is usually preferred to no deal at all. In his latest executive order concerning reciprocal tariffs, Trump has made it clear that countries receiving tariff reduction have either already (or nearly) agreed trade commitments with the US, and are deemed to be fully aligned with the US on economic and security matters.
So, without meaningful negotiation, Indonesia might have still faced a 32% rate by July 31st, which is significantly higher than the rate imposed on other regional competitors in the same timeframe (see Figure 1).
Figure 1. The comparison of reciprocal tariff rates (see original document)
However, since most trade surplus economies in the region managed to secure roughly the same rate as Indonesia, even without finalising negotiations with Trump before the 1 August deadline, the question arises of whether rushing a deal with the US really gave Indonesia a first mover advantage or, instead, just made Indonesia look desperate.
Table 1 suggests there was no first mover advantage for Indonesia. It was treated just like the later entrants in the region, including Malaysia, Thailand, and Cambodia, with the last two only closing their deals after a ceasefire ended the armed conflict at their shared border that erupted at the end of July.
What's more, Indonesia agreed to three broad commitments to the US in return for lower tariffs:
- abolishing tariffs for virtually all US imports.
- lifting non-tariff barriers (NTBs) affecting not only US goods but also services, including import approval for agriculture products, local content rules for cellphones and vehicles, digital trade barriers, and restriction on exports of critical minerals.
- committing to purchasing more US agriculture, energy, and aircraft.
Given the extent of these commitments and the challenge of actually fulfilling them, rushing a deal with the US created the optics of capitulation, especially as Indonesia did not appear to receive significantly more favourable tariff rates than its competitors.
In fact, the rate that Indonesia now shares with other competitors has less to do with what Indonesia offers, and more to do with the nature of the reciprocal tariff negotiations. After all, it is unthinkable that one country (the US) could conclude hundreds of different trade agreements in the span of months, given a typical free trade agreement might take years to conclude.
It is therefore unsurprising that Trump eventually treated the reciprocal tariff negotiation in bulk rather than on a country-by-country basis, as the latter was deemed to be 'too much for everybody', to use Trump's own words, due to insurmountable logistical challenges. Hence, implementing a relatively flat rate for most of the world was more sensible than applying a specific rate on a case-by-case basis. Based on the revised executive orders, the rate for trade-deficit countries with the US, such as Singapore, is still at 10%, while for trade-surplus economies, the base rate has now converged to become from 15% to 20%.
This outcome could have been anticipated if Indonesia had entered the negotiation arena with a clear and strategic negotiation roadmap from the outset.
Unfortunately, Indonesia's negotiators were too naive. They seem to have thought the US was entering negotiations with a bilateral deal in mind when it was always approaching the reciprocal tariff negotiations on an overarching basis. This misperception led Indonesia to offer very generous terms to the US in the hope of outpacing regional competitors. They believed quick action would secure a better tariff rate and protect Indonesia's export-driven, labor-intensive sectors from losing access to the US market.
But Indonesia was never a special case in Trump's world. With most Southeast Asian countries ultimately receiving similar 19%-20% tariff rates, Indonesia's early move brought no clear advantage – only very substantial commitments to the US. In hindsight, waiting might have yielded a comparable outcome without the heavy obligations Indonesia now faces.
The blind leap
The Indonesian government took a calculated risk when it offered 0% tariffs and greater purchases to the US.
With Indonesia and the US exports being highly complementary (see Figures 2 and 3), removing tariff barriers for US products is unlikely to elicit serious political backlash from domestic businesses, who are known to be loyal supporters of Prabowo. Importantly, almost 90% of Indonesia's imports from the US already have very low tariffs anyway.
Moreover, the commitment to purchase US energy, agriculture, and aircraft, valued at more than USD 22 billion, will primarily be undertaken by state enterprises and firms with close government connections. That means the government could arbitrarily shift import purchases away from traditional suppliers to make room for more US products, with minimum risk of straining the trade balance.
Figure 2. Indonesia's exports to the US, 2023 (see original document)
Figure 3. Indonesia's imports from the US, 2023 (see original document)
However, Prabowo's administration frequently misinterprets the true implications of the Indonesia-US trade deal. This suggests that negotiators – including Prabowo himself – have not grasped the full consequences of their commitments.
Evidence of this can be seen in the inconsistent responses within the administration when questioned about the consequences of allowing the transfer of personal data to the US. Under the trade deal, the US has requested Indonesia to recognise the US as a territory that provides adequate data protection, so data can cross borders more seamlessly into the US while still upholding Indonesia's Law 27 on Personal Data Protection.
This Law stipulates that the data can cross borders only into jurisdictions with adequate data protection regimes but it does not specify what it means by 'adequate'. The US is seeking more certainty on that matter by requesting recognition. Public concern stems from the fear that the US may, in fact, not be able to deliver sufficient data protection.
When asked on 24 July about the impact of personal data flowing into the US, Prabowo gave an uncharacteristically long pause and acted as if that point was still being negotiated, when, in fact, Trump had made his demand for 'adequacy recognition' clear since his 22 July joint statement.
Indonesia's presidential communication office (PCO), with support from CMEA, has even attempted to dismiss the public's concerns altogether by making a statement that is not even remotely correct about cross-border personal data flows. Instead, the PCO referenced something entirely different, namely the importance of data exchange related to dual-use goods that can be used for both civilian and military purposes, which is neither a public concern nor included in the deal.
Another example of a fundamental misunderstanding by the Indonesian government over the deal that they themselves negotiated is that CMEA prematurely claimed that Indonesia wouldn't be affected by a punitive transshipment tariff, like Vietnam. But Trump's latest executive order clearly states that no country will be spared the transshipment rate – including Indonesia. If the US border authority deems a product to be merely transshipped from another location, that product will now face a steep 40% tariff instead of whatever new rate the originating country gets from the new tariff deal (typically around 15% to 20%).
Transshipment is not in itself illegal under WTO law, but stopping it is essential to make a high tariff threat to China (~50%) remain credible. Otherwise, goods can be just transshipped through other lower-tariff locations, such as Indonesia and Vietnam. The main uncertainty here lies in how much domestic processing can genuinely be considered sufficient to prevent categorisation as merely transshipment by the US border authority.
If transshipment tariffs are applied too stringently – penalizing not just actual rerouting but also overall foreign content, especially Chinese – Indonesian exporters risk losing competitiveness as they still rely heavily on imported materials from China. OECD data shows that about a quarter of Indonesia's imported inputs in its exports are of Chinese origin (see Figure 4). If negotiators had truly understood what transshipment means and why it is important for the US, they would not have downplayed the whole issue and made such a premature claim.
Figure 4. Foreign Value Added (FVA) in Gross Export (% of all foreign content), 2020 (see original document)
Institutional shortcoming
The tendency to downplay the true implications of the Indonesia-US deal may be intended to cool down public anxiety over a one-sided deal with the US. But it may also be emblematic of the bureaucratic incompetence that has plagued Prabowo's administration and his policymaking process.
Advisory bodies filled with many trade experts, like the National Economic Council (DEN) and the presidential special envoy (UKP), do not appear to have been particularly effective in giving advice throughout negotiations, let alone in driving the entire process. In fact, negotiation was mainly led by CMEA from the very beginning, and it clearly lacks the technical expertise to reach an agreement of that magnitude and speed. The Ministry of Trade, usually the focal point of any trade agreement negotiation, seemed to be sidelined in the whole process.
This is not to say that the negotiation led by the CMEA was destined to fail, but clarity around the coordination process was critical to ensure Indonesia was prepared to deal with whatever the mercurial Trump did next. The shocked and defensive response from Indonesian officials when Trump announced a base rate of 15% to 20% for most trade-surplus economies indicates otherwise.
Indeed, top leaders do not have to know every single little detail of the technical terms agreed in a trade agreement. They usually only get involved at the later stage to conclude and sign, just as Prabowo did in Brussels to provisionally secure a trade agreement with the EU after 10 years of negotiation.
However, based on the recent comments made by the CMEA, it seems that not even the main negotiators themselves know what they are getting out of the deal. From this perspective, the agreement with the US warrants no celebration. On the contrary, it exposes a glaring incompetence within the Prabowo administration, deserving of even more intense public scrutiny.
In the end, if Indonesia hopes to secure its place in an evolving global trade landscape, it must not only navigate the increasing technical complexities of Trump's disruptive new trade rules but also confront its own institutional shortcomings.