President Trump announced on Tuesday that he has reached a preliminary trade agreement with Indonesia, following a previous threat to impose a significant 32% tariff on the Southeast Asian nation. Trump expressed his enthusiasm about the deal, stating, “Great deal, for everybody, just made with Indonesia. I dealt directly with their highly respected President [Prabowo Subianto]. DETAILS TO FOLLOW!!!” via his platform, Truth Social.
This agreement comes amid Trump’s broader strategy to negotiate favorable trade arrangements in a climate characterized by escalating trade tensions. Recently, he has also disclosed similar agreements in principle with the UK, China, and Vietnam, as well as a trade “roadmap” with India, after initiating a global trade conflict on April 2 with his announcement of “reciprocal” tariffs.
Indonesia, with a population of nearly 290 million, principally exports textiles and agricultural products. Despite its size, trade between Indonesia and the US is relatively modest, often ranking just outside the top 20 nations in terms of trade volume, comparable instead to that with Israel.
The president’s focus appears to be aimed at reducing tariffs and barriers to facilitate the sale of American-made products, while also addressing trade deficits with various nations. In conjunction with the recent agreements, baseline tariffs have remained elevated compared to levels before Trump took office in January. For instance, Vietnam has agreed to a 20% tariff, while the UK is set at 10%, and China faces a temporary 30% tariff until further negotiations are completed.
Currently, the average US tariff rate on foreign imports stands at 2.2% in 2024 according to the World Trade Organization, indicating that post-deal rates for many countries are generally higher than historical averages. Trump’s threat of reciprocal levies, which are scheduled to take effect on August 1 against nations that fail to reach a deal, primarily targets the European Union, Japan, and South Korea.
Furthermore, the ongoing trade war intersects with Trump’s attempts to encourage the Federal Reserve to lower interest rates, though the central bank has resisted such moves, citing concerns that tariffs could spur inflation. For example, the Consumer Price Index for June indicated a rise in annual inflation to 2.7%, which may hinder efforts to lower borrowing costs essential for business loans and consumer credit.
This trade deal with Indonesia, if successful, could help strengthen US ties with Southeast Asia and bolster economic growth opportunities. The focus on reducing barriers and promoting American exports may benefit various sectors, including agriculture and manufacturing, thereby fostering a more sustainable economic environment.