Trump sets a higher negotiation bar. On 7 July, President Trump unveiled final reciprocal tariffs for 14 countries including Indonesia, which will be effective 1 August, a month delay from the original deadline of 9 July. Of total, only 8 countries are granted with lower tariffs while the rest are similar to what were announced on 2 April. This includes Indonesia, which is given a 32% import tariff. Separately, Vietnam was previously granted lower tariff of 20% and 40% for transshipment goods, well below the initial 46% (Exhibit 1).
The deal that wasn’t. The Indonesian government has persistently tried to negotiate with the US side to lower tariffs by proposing policies to reduce the bilateral trade surplus with the US, amounting to USD16.8bn last year (Appendix). The policy includes increasing imports of US energy and agricultural goods, purchasing more aircraft, and opening sectors for US investment. On 5 July, Coordinating Economic Affairs Minister Airlangga was still optimistic, aiming to get a tariff below 20% from the US. He also stated a potential agreement on USD34bn investment deal with the US scheduled for 7 July.
Small shock. Despite the threat of high tariffs, we still believe that the economic impact to Indonesia will be relatively limited. Indonesia’s exports to the US are only 1.9% of GDP and even lower at 1.3% excluding exempted items (see Tariff Ripple: Mapping the Impact on Indonesia). The second-round impact from a global economic slowdown is also relatively small only 19% of GDP compared to more open economies above 50% (Exhibit 2).
China tariff deal is also key. Decision on tariffs to China, which could potentially go to 145% by 9 August from the current temporary 30%, could impact Indonesia s trade balance given the market share of 25% of exports in China. Indeed, if it leads to Yuan depreciation, the Rupiah could get hit given the two s strong correlation. We maintain our forecast for Rupiah to average 16,300 in 2025, still reflects a weakening trend from 15,900 in 2024.
Second chance at a deal. In our view, the delay of the implementation provides a second chance for Indonesia. The government must come up with something fresh to get Trump to grant lower tariffs. Trump’s threat to impose additional 10% tariffs on those joining BRICS should also be noted. We believe the impact on Indonesia s economy will largely depend on the final US reciprocal tariffs relative to those imposed on other exporting countries of key Indonesian goods such as apparel and footwear (Exhibit 3).
Macro impact. We maintain our GDP growth forecast at 4.8% for 2025, which reflects a slowdown from 5% last year (see Midyear Economic Outlook: Hope Lies in Counter-Cyclical Policy). We also maintain our current account deficit (CAD) forecast of 1.1% of GDP in 2025 vs 0.6% last year, reflecting weaker global growth, partly due to the Trump Reciprocal Tariffs (Exhibit 4). Our sensitivity suggests that every 10% increase in US tariffs could lower Indonesia s exports by 0.2-0.3% of GDP, which should be more sharply if incorporate spillover from higher tariffs to other trade partners and eventually global demand to Indonesia goods.
