Indonesia Jumps Out of A Hole
Commentary by Wayne Forrest
Indonesians are known for their resilience and patience, especially when facing adverse circumstances. Both qualities are being severely tested currently. In the span of two weeks President Prabowo leaned heavily towards his American counterpart. He visited Washington February 18-19 to participate in the inaugural meeting of the Board of Peace (BOP). Soon after peace turned into war as the US and Israel attacked Iran. Prabowo also presided over the signing of the landmark US-Indonesia Agreement on Reciprocal Trade (ART), which included what appears to be several decades of USTR trade issues. It was then derailed the following day by the Supreme Court.
These are big and costly gestures on Indonesia’s part. Why did Prabowo take them? International recognition appears to be a factor. As the largest Muslim majority country and democracy in the world, Indonesia wants to offer the world its services as a mediator in Middle East conflicts. On pure economic terms, it needs to maintain access to the lucrative US market. But maybe there’s another explanation. Perhaps in the back of their minds, Indonesia’s leaders sensed that President Trump’s initiatives contained within them the seeds of their undoing. Like its legendary folk character Kancil, Indonesia has decades of experience finding its way among giants.
Its offer to join the BOP and send 20,000 peacekeepers to Gaza seems to be a symbolic gesture more than a real commitment. Israel has trouble accepting the neutrality of Indonesian troops given that Indonesia’s has no diplomatic relations with the country. Furthermore, Hamas has yet to make any commitment to disarm. Indonesia’s public will not accept the shedding of blood for Gaza. Troops could only be sent under the right circumstances.
Last year Indonesia was one of the first countries to send a delegation to begin negotiations with the US on a reciprocal tariff agreement after President Trump imposed a broad tariff regime in February 2025. The agreement signed in February 2026 matches the July 2025 framework agreement. Indonesia agreed to eliminate most non-tariff barriers only for US products (local content rules prime among them), eliminate tariffs on 99% of US goods, recognize US standards (including halal certificates), end local bank deposit mandates for the proceeds of mining exports, grant natural treatment for US investors in critical minerals as well as the elimination of divestment requirements. Indonesia received some concessions important to it. Garments and textile products will have a 0% tariff based on purchase of US cotton and other fibers. Palm oil and many of its traditional commodities (coffee, spices) are also at 0%. The US is Indonesia’s primary market for these products, especially garments.
I know that Indonesia received plenty of advice that the Trump Administration utilization of IEEPA as the basis for the tariffs was in violation of the US Constitution. It may be that is the reason to date we have not seen any Indonesian ministry preparing the implementation regulations for the agreement. Only time will tell if the ART will be resurrected. So far, Indonesia is taking a “wait and see” attitude and the US is preparing alternate tariff routes through existing legislation (i.e. Section 301 of Tariff Act of 1974).
I agree with the US Chamber of Commerce (USCC) statement: “The Supreme Court’s decision is welcome news for businesses and consumers. Over the past year, the Chamber has been working with small and midsize businesses around the country that have seen significant cost increases and supply chain disruptions as a result of these tariffs.” On the other hand, the tariff agreement pushed market opening measures in Indonesia that were good for the Indonesian economy as well as US exporters. My colleague John Goyer at USCC recently remarked that the reforms would help Indonesia gain membership in the OECD, something it covets. Whether or not the ART returns in another form, Indonesia would be wise to move on some of the reforms not for only the US but for all its trading partners. No doubt a hard “ask”.
Several US trade associations (cotton, corn, beef, soybeans) applauded the part of the ART where Indonesia agreed to purchase $33 billion of US energy, dairy and agricultural products over a multi-year period. But if you dig into the numbers, you will find that Indonesia already purchases most of these products, perhaps not in the quantities listed. To meet the terms of the ART, Indonesia will divert purchases from other countries. Its not the hardest part of the deal.
What could be difficult are the market-opening features of the ART; these could hurt Indonesia’s protected industries. They also could pave the way for more US products to enter Indonesia, but this is hypothetical. Will the products be competitive, are they sized and formulated correctly, considering Indonesia’s unique market and culture? We shall see.
I think no matter what happens next Indonesia should be admired for “reading the room”. Rather than arguing or pushing back on President’s Trump’s signature initiatives, Indonesia maneuvered to the front of the line to stay positive, show support, while at the same time keeping its own interests in focus. It relied on its own comfort zone.
It may also have channeled the collective wisdom of the beloved hero of many of its folktales, Kancil, the clever mouse-deer. In one Kancil is walking through the forest when he falls into a deep hunter’s trap. He tries to jump out, but the walls are too steep. Soon, an elephant passes by. Thinking quickly, Kancil shouts: “Help! The sky is going to fall! This hole is the only safe place!” The Elephant panics and jumps in to join him. As soon as the Elephant is inside, Kancil jumps on to his back and leaps out of the hole.
You might think I am saying Indonesia has cleverly found its way out of a trap laid by the US. That’s possible, but more likely it has entered into agreements it can live with at a manageable cost.
(These views are the author’s and may not reflect those of AICC or its members.)