A new trade agreement between the United States and Indonesia, finalized during a state visit by Indonesian President Prabowo Subianto, is raising concerns among analysts about its potential impact on Indonesia’s economic outlook and trade balance.
Deal Details and Concerns
President Prabowo Subianto and US President Donald Trump signed the agreement on Thursday. The US will maintain a 19 percent tariff on Indonesian goods, with textiles and apparel receiving a 0 percent reciprocal tariff. This rate is lower than the previously threatened 32 percent, but remains above rates aligned with World Trade Organization principles.
In exchange, Indonesia will eliminate tariffs on over 99 percent of US products and commit to purchasing over $30 billion in US aircraft, energy and farm products. While the White House has called the agreement a “great deal” that will promote economic growth, experts express caution.
Josua Pardede, chief economist at Permata Bank in Jakarta, noted the agreement is designed to expand US access to the Indonesian market, creating “a realistic risk” that Indonesian imports will increase faster than exports. This could strain Indonesia’s current account and the rupiah.
Potential for Growth and Investment
Priyanka Kishore, director and principal economist at Asia Decoded, suggested the lowered US tariffs may ease pressures on Indonesia’s labor-intensive export industries. However, she emphasized the need to assess whether Indonesia can increase its market share in the US or attract more US investment.
Indonesia’s economy experienced a three-year high in 2025, growing by 5.11 percent. The Indonesian government aims for 5.4 to 5.6 percent growth this year.
Challenges to Economic Momentum
However, economists warn that this momentum could be affected by recent financial developments. A Moody’s downgrade of Indonesia’s credit rating outlook and concerns raised by MSCI regarding the Indonesian stock exchange are likely to dampen foreign investment, potentially leading to further depreciation of the rupiah, according to Suryaputra Wijaksana, an economist at UOB Kay Hian.
Sawidji Widoatmodjo, dean of the economics and business school at Tarumanagara University, stated that sustaining 5 percent growth this year may require increased government spending, which could lead to higher debt levels.
Wahyu Ario Pratomo, a lecturer at the University of North Sumatra, emphasized the importance of diversifying Indonesia’s markets to mitigate the impact of US tariffs and the need for increased domestic consumption and investment.
Frequently Asked Questions
What is the main goal of the US-Indonesia trade agreement?
The agreement aims to provide increased market access for both US and Indonesian products, with Indonesia eliminating tariffs on over 99 percent of US products and the US maintaining a 19 percent tariff on Indonesian goods.
What are the potential risks associated with this trade agreement?
Analysts suggest a “realistic risk” that Indonesian imports could rise faster than exports, potentially straining Indonesia’s current account and the rupiah.
What was Indonesia’s economic growth rate in 2025?
Indonesia’s economy grew by 5.11 percent in 2025, marking a three-year high.
How will Indonesia balance the potential benefits of increased trade with the risks of economic instability?