Indonesia Accelerates Trade Agreements Amid US Tariff Concerns

Indonesia Eyes Deeper EU Trade Ties with CEPA Deal

Indonesia is actively pursuing a complete economic partnership agreement (CEPA) with the European Union, a move anticipated to significantly boost trade and cooperation between the two entities.The EU market represents a substantial 7.4% of Indonesia’s total exports, valued at US$21.47 billion (S$27.52 billion) in 2024, according to data from BPS.

The Netherlands and Germany stand as the primary European importers of Indonesian products,which include chemical goods,vegetable oils,cocoa beans,footwear,and electrical equipment.Conversely, Indonesia imports vehicles, pharmaceuticals, and electronic and medical instruments from the EU.

Industry leaders are expressing strong optimism regarding the finalization of the Indonesia-EU CEPA, with the Indonesian employers’ association, Apindo, having been involved in negotiations for the past decade. Mrs. Shinta Kamdani, chairwoman of Apindo, highlighted that CEPA agreements extend beyond mere market access, encompassing crucial elements of capacity-building and cooperation.

She emphasized the need for close collaboration to bridge the gap between EU buyers’ stringent product standards and Indonesian producers. “it is not only about signing an agreement, but how we can utilise the agreement,” Mrs.Shinta stated, citing the successful CEPA Indonesia has with Australia as a positive precedent. This collaboration involves joint efforts between the Indonesian government and businesses, supported by the Australian government, to establish task forces focused on trade and investment. The Indonesia-Australia CEPA, which came into effect in July 2020, followed its official signing in March 2019 and subsequent ratification by both countries’ parliaments.

Mr. Fithra Hastiadi, a senior advisor to the Presidential Dialogue Office, echoed mrs. Shinta’s sentiments regarding the EU’s high standards. He believes that enhanced market access with the EU will serve as a positive signal, facilitating Indonesia’s entry into other global markets.This “positive signalling effect,” he explained, will be instrumental in improving Indonesia’s competitive position on the international stage.

How might Indonesia’s proactive trade strategy impact its economic growth if US tariffs increase significantly?

Proactive Trade Strategy: Diversifying Beyond the US Market

Indonesia is significantly accelerating its efforts to forge new trade agreements and strengthen existing ones, largely in response to escalating concerns surrounding potential tariff increases from the United States. This strategic shift aims to reduce reliance on the US market and bolster economic resilience. The Indonesian government views diversifying trade partners as crucial for sustained economic growth,particularly in the face of global trade uncertainties. Key terms driving this initiative include trade diversification, regional trade agreements, and economic partnerships.

Recent Trade Agreements & Negotiations

Indonesia has been actively pursuing agreements across several regions. Here’s a breakdown of recent developments:

indonesia-European Union Comprehensive Economic Partnership Agreement (IEU-CEPA): Negotiations are in the final stages, with expectations of completion by early 2026. This agreement is projected to significantly boost Indonesian exports of manufactured goods, agricultural products, and services to the EU. focus areas include sustainable palm oil and automotive components.

Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) – Expansion: Building on the existing IA-CEPA, both nations are exploring expanded cooperation in digital trade, green technology, and supply chain resilience.

digital Economy Partnership agreement (DEPA): Indonesia,Singapore,and New Zealand are working to expand the DEPA to include other nations,creating a framework for digital trade facilitation and data flow.

Pacific Trade Agreement (PTA): indonesia is actively engaging in discussions surrounding the PTA, aiming to gain preferential access to markets in the Pacific region.

Bilateral Agreements with African Nations: Recognizing the growing economic potential of Africa, Indonesia is prioritizing bilateral trade agreements with key African economies, focusing on infrastructure advancement and agricultural cooperation.

US Tariff Concerns: The Catalyst for Change

The potential for increased US tariffs, particularly concerning indonesian textile, footwear, and automotive exports, has served as a major catalyst for Indonesia’s accelerated trade strategy. While Indonesia maintains a strong trade relationship with the US – with US-Indonesia trade volume reaching $40.3 billion in 2024 – the government recognizes the need to mitigate risks.

Specifically, concerns center around:

1. Section 301 Investigations: Ongoing US investigations into alleged unfair trade practices could lead to the imposition of new tariffs.
2. Protectionist Policies: A shift towards more protectionist trade policies in the US could further restrict Indonesian exports.
3. Supply Chain Disruptions: Geopolitical tensions and potential trade wars could disrupt global supply chains, impacting Indonesian businesses.

Impact on Key Indonesian Industries

Several Indonesian industries are particularly affected by the US tariff situation and stand to benefit from diversified trade agreements:

Textile & Garment Industry: This sector, a major Indonesian exporter, is vulnerable to US tariffs. Agreements with the EU and other Asian nations offer choice markets.

Footwear Industry: Similar to textiles, the footwear industry faces tariff risks in the US.Diversification is crucial for maintaining export volumes.

Automotive Industry: Indonesia’s growing automotive sector is seeking new export destinations to reduce reliance on the US market.

Agricultural Sector: Agreements like IEU-CEPA will open up new opportunities for Indonesian agricultural exports, including palm oil, coffee, and spices. Palm oil exports are a notable component of Indonesia’s agricultural trade.

Digital Economy: The DEPA and related initiatives are fostering growth in Indonesia’s digital economy, creating new export opportunities in areas like e-commerce and digital services.

Benefits of trade diversification for Indonesia

Beyond mitigating tariff risks, trade diversification offers several key benefits for Indonesia:

Increased Export Revenue: Access to new markets expands export opportunities and boosts revenue.

Enhanced Economic Resilience: Reduced reliance on a single market makes the Indonesian economy more resilient to external shocks.

Foreign Investment Attraction: Trade agreements often attract foreign investment, stimulating economic growth.

Technology Transfer: Collaboration with advanced economies through trade agreements facilitates technology transfer and innovation.

Job Creation: Increased trade and investment lead to job creation across various sectors.

Practical Tips for Indonesian Businesses

Indonesian businesses looking to capitalize on these new trade opportunities should consider the following:

Market Research: Conduct thorough market research to identify potential export destinations and understand local regulations.

Product Adaptation: Adapt products to meet the specific requirements and preferences of different markets.

Supply Chain Optimization: Optimize supply chains to ensure efficient and cost-effective delivery of goods.

Digitalization: Embrace digitalization to streamline trade processes and enhance competitiveness.

Government Support: Utilize government programs and resources designed to support exporters. The Ministry of Trade Indonesia offers various assistance programs.

case Study: Indonesian Coffee Exports to Europe

In 2024, following preliminary discussions on the IEU-CEPA, Indonesian coffee exports to Germany increased by 15%. This surge was attributed to early tariff reductions and increased marketing efforts targeting European consumers. This demonstrates the potential benefits of proactive trade engagement.

Real-World Exmaple: The Impact of