THE US and China have reached an agreement by cutting import tariffs temporarily between them.
- In the announcement on May 12, the US stated additional tariffs on products from China from the original 145% to 30%.
- China reciprocally lowered tariffs on US products from 125% to 10%.
- The policy is valid for 90 days.
Jakarta-Washington to dissolve differences
Meanwhile, Indonesia is still in the negotiation stage with the US. Indonesian products are subject to a 32% tariff to enter the US, higher than the last tariff imposed on China.
The easing of the US-China trade war has a double impact on Indonesia.
On the one hand, China’s manufacturing and construction industries are recovering, boosting demand for Indonesia’s leading commodities, such as nickel, coal, and palm oil to China. In addition, the weakening of the rupiah exchange rate is more controlled.
On the other hand, there is a potential threat, namely the decline in the competitiveness of Indonesian products in the US market because import tariffs on Chinese products are lower than those from Indonesia.
Indonesia’s textile, footwear, and apparel markets could be taken over by China. In addition, it could result in the relocation of industry from Indonesia back to China.
The Indonesian government should be more active in lobbying the US by using the leverage that Indonesia has, such as the renewal of Freeport’s IUPK and relaxation of copper concentrate exports.
Indonesia’s foreign debt
Indonesia’s foreign debt in the first quarter of 2025 was recorded at USD 430.4 billion or around IDR 7,126 trillion, up 6.4% annually (year on year or yoy) compared to the first quarter of 2024.
The foreign debt growth is higher than the growth in the fourth quarter of 2024 which was only 4.3%.
Currently, Indonesia’s external debt to GDP ratio is recorded at 30.6%, and is dominated by long-term debt with a share of 84.7%. This increase in external debt was driven by government debt.
The Indonesian government’s external debt position in the first quarter of 2025 was USD 206.9 billion, growing 7.6% (yoy), higher than the growth of 3.3% (yoy) in the fourth quarter of 2024.
Government external debt is dominated by long-term debt, with a share of 99.9% of the total government external debt. Meanwhile, private external debt contracted, falling 1.2% (yoy). This figure is lower than the previous quarter’s contraction of 1.6% (yoy).
Private debt remains dominated by long-term debt with a share of 76.4% of total private debt.
A wave of layoffs
Meanwhile, the storm of layoffs has not subsided.
From January-March 2025, 73,992 participants of Indonesian Social Security Organizing Agency (BPJS) for Employment have been laid off. Those who filed severance benefits claims due to layoffs in 2024 reached 154,010 people, and 40,683 people in January-March 2025.
There is no other option for the Indonesian government except to focus on attracting labor-intensive investment. Without that, the job market will find it difficult to accommodate the large workforce.
Every year, 3-4 million new jobs must be prepared.
