Jayanty Nada Shofa, Jakarta – Indonesian business lobby Apindo said Monday that the US tariff cost-sharing had already caused exporters a major headache, and now companies will likely have to spend more money next year as minimum wage hikes loom.
Washington has been charging Indonesian goods a 19% import duty since August. The US importers typically bear most of the tariff costs. However, Apindo's employment affairs head Bob Azam revealed that buyers had been pressuring US-bound exporters – including the textile manufacturers – to bear a portion of the tariff burden. However, businesses will soon not only have to deal with the tariff-related expenses, but also larger paychecks. Under the new rules, wages in Jakarta will likely rise by about 5% to 7% next year.
"Buyers have been asking Indonesian exporters to share the burden of the 19% tariffs. This can be tough, especially with the proposed minimum wage hikes.... The burden-sharing scheme varies. Some are asking a 50:50 split, while others have pitched a different ratio," Bob told reporters in Jakarta.
The businessman went on to say that some companies were already not making money, with many enterprises struggling to afford even the 2025 wage requirements. For 2025, Indonesia has set a 6.5% hike to the minimum wage nationwide.
"That's why companies are facing a dilemma," Bob said, commenting on the wage increases in the post-tariff world.
The government's new wage formula has rattled businesses. The formula sets the so-called coefficient alpha in a range of between 0.5 and 0.9, up from 0.1 to 0.3 under the previous framework. A higher alpha means employers have to pay their workers even more.
"We don't think the [alpha] has anything to do with productivity and unemployment rate.... It's not going to be easy for the labor-intensive industries like the textile manufacturers," Bob remarked.
He highlighted that employers were not against the idea of increasing the workers' salaries. However, it'd be better for businesses to negotiate the wage with their employees on their own rather than follow a government-set formula, according to Bob, citing that companies have a better idea of their internal finances.
Indonesia's chief negotiator Airlangga Hartarto is now in Washington for another round of trade talks. Both governments are trying to put together an agreement that not only finalizes the tariff terms, but also the scope of the partnership meant to create a reciprocal trade. Airlangga has yet to issue a press statement on his meeting with US Trade Representative Jamieson Greer. Before leaving Jakarta, the senior minister told reporters last week that he would focus on convincing Greer to drop the tariffs on palm oil, while admitting that further import duty cuts on textiles would not be part of the discussions.
"Because the tariffs [on footwear and textiles] will remain the same at 19%," Airlangga said.