Indonesia, US seal trade deal with 19% tariff and exemptions for goods like coffee

JAKARTA – Indonesia and the United States signed a trade pact on Feb 19, finalising a 19 per cent tariff on most Indonesian exports to the US, as well as a pledge by the South-east Asian country to purchase about US$33 billion (S$42 billion) worth of American goods.

Indonesian textile exports – up to a volume to be decided – are set to receive a zero per cent tariff, which Coordinating Minister for Economic Affairs Airlangga Hartarto touted as a coup for the four million Indonesian workers in the textile industry.

“Access to the US market is good, as Indonesia is planning to expand textile industry exports from around US$4 billion to US$40 billion in the next 10 years,” Mr Airlangga said at a press conference after the signing of the deal in Washington on Feb 19.

Besides textiles, more than 1,800 other commodities, including Indonesian palm oil, coffee, chocolate, spices, rubber and electrical components, would also be exempt from tariffs, he said.

In exchange, Indonesia has pledged to purchase US$15 billion of US energy commodities, including US$7 billion in refined petroleum, as well as US$13.5 billion of commercial aircraft and aviation-related goods and services, and also US$4.5 billion of US agricultural products.

The commitment to buy more fuel from the US is significant for Singapore, which has been Indonesia’s largest supplier of refined petroleum since at least 2017.

The agreement comes after months of negotiations, following US President Donald Trump’s issuance of the so-called “Liberation Day” tariffs in April 2025, which had initially raised tariffs on Indonesian goods to 32 per cent.

Indonesia has also set zero per cent tariffs on imports of US agricultural goods, including soya beans and wheat, which are essential raw materials for Indonesian food items such as tofu, tempeh and noodles. Mr Airlangga said this would benefit Indonesian consumers and mitigate food price inflation.

As expected, Indonesia has also committed to removing non-tariff barriers on US goods, including a requirement to have locally made parts in foreign products.

The Straits Times had previously reported that the US had sought “a commitment from Indonesia to readjust its South China Sea policy” and to buy US drones, which Indonesian officials had baulked at. These clauses were not included in the final trade agreement.

However, the agreement does include an article requiring Indonesia to “communicate with the United States before entering into a new digital trade agreement with another country that jeopardises essential US interests”.

An Indonesian government source had previously told ST the country was trying to avoid this clause, as it would “constrain Indonesia’s foreign cooperation”.

Coordinating Ministry for Economic Affairs spokesman Haryo Limanseto did not immediately respond to ST’s requests for comment.

The signing of the trade deal was part of Indonesian President Prabowo Subianto’s latest visit to the US, which started on Feb 17.

Besides the signing, Mr Prabowo also attended a US Chamber of Commerce dinner, as well as the inaugural meeting of the Board of Peace, which was started by Mr Trump to address the situation in Gaza.

During the dinner on Feb 18, Indonesian and US companies signed deals worth US$38.4 billion for partnerships in mining, energy, agribusiness, textiles, furniture and technology.

At the event, Mr Prabowo reiterated his desire for Indonesia to have a close relationship with the US.

“I think today my visit here, my support of the US-Indonesia partnership, is evidence of our commitment that we want to see a strong American presence in Indonesia,” he said. “We’ve always tried to convince the United States of America that Indonesia is a true friend.”

A joint statement published on the White House website on Feb 19 used similarly glowing terms. President Trump and President Prabowo called the agreement “historic” and described it as the start of a “NEW GOLDEN AGE” for the US-Indonesian alliance.

Mr Airlangga echoed the sentiment at the post-deal press conference, describing the agreement as “win-win”. He said the deal “benefits the Indonesian people as well as the US people, because we would like to achieve a golden era for both countries”.

But analysts who spoke to ST raised concerns that some provisions of the agreement limit Indonesia’s foreign and economic policy options. In particular, they pointed to Section 5.2, which requires Jakarta to cooperate with US trade sanctions.

“The obligation to align with US economic security policies, such as sanctions, implicitly shifts Indonesia’s neutral position in global rivalries,” Mr Deni Friawan, an economics researcher at Jakarta-based think-tank Centre for Strategic and International Studies, told ST.

Mr Bhima Yudhistira, executive director of think-tank Center of Economic and Law Studies, agreed, saying that the trade deal gave too much preferential treatment to the US.

“If Indonesia is required to participate in US boycotts and sanctions, that means Indonesia is no longer ‘free and active’,” he said, referring to the country’s longstanding foreign policy of non-alignment.

Mr Deni acknowledged, however, that Indonesia was not in a strong negotiating position.

“As a major power, the US has really used its leverage to pressure other countries to comply with its wishes,” he said.

He added that despite the deal’s “asymmetry”, the tariff exemptions on Indonesian commodities still present an opportunity that Indonesia could take advantage of.

“If this is managed well, this can be the starting point for not only expanding trade volume but also upgrading Indonesia’s industries,” he told ST, noting that access to US markets could attract more foreign direct investment to the South-east Asian country.

“Ultimately, the agreement is neither inherently beneficial nor detrimental,” he said. “Its benefits will be determined by the quality of Indonesia’s domestic strategy in managing its implementation.”