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Indonesia: Current Account Implications from US Tariffs
- Indonesia and the United States signed a trade framework in Jul, adjusting US import tariffs to 19% (viz. 32% prior), with parallel cooperation in digital trade, environmental standards, labor, and security issues.
- Indonesia's exports to the US are dominated by low value-added manufacturing and mining, while imports from the US are dominated by raw materials and capital goods. In particular, despite the lower tariff of 19% effective in Aug, we estimate the value of key export products such as furniture, textiles, mineral products, and footwear to reduce Indonesia’s exports to the US by around USD9bn.
- Under the 19% tariff scenario, Indonesia’s trade surplus with the US may potentially narrow significantly to just USD5bn (2023 surplus: USD11.7bn, and 2024 surplus: about USD14bn, per BI data). Assuming the imports of Indonesia from the US on some key import goods, such as on soybeans and related products, are taking an effective 0% rate, the surplus could further narrow to USD4.1bn.
- In the end, this narrowing trade surplus may exert pressure on Indonesia’s current account deficit (CAD), ceteris paribus, given that on average, the US accounted for one-third of Indonesia’s trade surplus over the past few years.
- BI expects CAD this year to remain relatively manageable within the range of 0.5-1.3% of GDP despite global uncertainty and challenges. However, we felt that given risks of reduced surplus in goods and services trade, our 2025 CAD forecast of 1% of GDP is now revised to 1.5% and up to 2.1% of GDP for 2026. Historical precedent suggests that the rupiah typically depreciated during times of widening CAD. This may complicate chances of further easing by BI. We therefore maintain our 2025 BI rate forecast at current level of 5.25% and only to resume cutting in 1Q26.
Indonesia-US Trade Agreement Highlights
On 22 Jul, Indonesia and the United States (US) reached a significant trade framework , finalizing import tariffs for Indonesian goods at 19%, reduced from the previous rate of 32%. Beyond tariff-related matters, both nations signed additional accords covering key sectors including digital trade, environmental commitments, labor standards, and bilateral economic and security arrangements. In the trade sector, the framework encompasses Indonesia’s procurement of American aircraft, energy commodities, and agricultural products, with total purchase commitments estimated at USD22.7bn over the years. Furthermore, the US has requested significant reduction of Indonesian import tariffs to 0% and the easing of non-tariff barriers, including streamlined shipping procedures and alignment with US certification standards.
US Agreement May Shift Dynamics of Indonesia’s Trade Balance
Indonesia’s trade balance has recorded a surplus for 61 consecutive months since 2020 (see: Indonesia: Larger trade surplus on strong non-oil exports). On the export side, the manufacturing and mining sectors remain dominant, accounting for 80.2% and 12.6% respectively, or USD20bn and USD3.1bn as of May 2025. Meanwhile, imports are largely composed of non-oil & gas commodities, primarily raw materials and capital goods, comprising 69.1% and 21.8% respectively, valued at USD14bn and USD4.5bn.
Enrico Tanuwidjaja
Economist
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