An agreement between the US and China to reduce import tariffs could create favorable conditions for Indonesia in ongoing trade negotiations.

Starting May 14, 2025, the US will cut tariffs on Chinese goods from 145% to 30%, while China will lower tariffs on US products from 125% to 10%.

The deal is set for 90 days and aims to ease trade tensions, benefiting Indonesia.

Deni Surjantoro from the Ministry of Finance said this agreement offers Indonesia a chance to strengthen its position in trade forums. It could enhance export flows, attract foreign investment, and improve investor sentiment.

Susiwijono Moegiarso from the Coordinating Ministry for Economic Affairs highlighted that the US-China talks create a better global trade environment. This includes Indonesia’s negotiations with the US to lower reciprocal tariffs from 32%.

🔗 Source: Bisnis Indonesia

🧠 Food for thought

1️⃣ Trade wars create lasting supply chain shifts despite temporary agreements

The US-China trade conflict has fundamentally altered global supply chain strategies in ways that will persist regardless of temporary tariff reductions.

When tensions first escalated in 2018-2019, tariffs affected over $250 billion of Chinese goods and $110 billion of US goods, forcing companies to develop “China Plus One” strategies to diversify manufacturing locations 1.

These structural shifts have benefited countries like Indonesia, with companies redirecting investments to Southeast Asia to mitigate tariff risks and reduce dependency on single markets 2.

Even with the new 90-day agreement between the US and China, companies are unlikely to reverse supply chain diversification plans given the proven volatility of bilateral relations and the high costs of repeatedly restructuring operations.

Manufacturing and sourcing decisions typically operate on multi-year timelines, making firms hesitant to react to short-term diplomatic developments when the underlying geopolitical tensions remain unresolved.

2️⃣ Indonesia’s negotiating leverage comes from its moderate trade surplus position

Indonesia enjoys a stronger negotiating position with the US compared to other Asian economies due to its relatively modest trade surplus.

Unlike countries with massive trade surpluses that have become primary targets in US trade policy, Indonesia’s surplus is comparatively small, giving it more flexibility in negotiations 3.