The United States–Indonesia trade deal, struck in July 2025, is now reportedly at risk of collapsing. According to US Trade Representative officials, Jakarta is “back-tracking” on several commitments, particularly those involving the removal of non-tariff barriers and the adoption of digital-trade rules. Indonesia is said to be pushing to convert what were originally binding pledges into non-binding promises, undermining key elements of the agreement.
Under the original deal, Indonesia agreed to cut tariffs on more than 99% of US goods and remove most non-tariff barriers affecting American industrial and agricultural exports. In return, the United States reduced a previously threatened 32% tariff on Indonesian exports down to 19%. Indonesia also committed to increasing imports of US products, ranging from energy and agricultural goods to aircraft to help narrow its trade surplus with the United States.
Another major component of the deal was Indonesia’s promise to relax longstanding local-content rules, which have discouraged American investment by requiring manufacturers to use a minimum share of locally sourced inputs.
The deal began to falter when Indonesian officials informed the United States that they could not implement several of the binding commitments. Instead, they sought to renegotiate and downgrade some obligations. Domestic pressure plays a significant role in this reluctance, Indonesian business groups argue that eliminating local-content and other protective regulations could harm local industries.
In addition, some US proposals included what Indonesian critics described as “coercive clauses,” such as provisions limiting the country’s ability to enter agreements with geopolitical rivals, something Jakarta saw as infringing on its economic sovereignty.
The consequences of a collapse would be far-reaching. For US exporters, losing the agreement could mean restricted access to Indonesia’s large and growing market. For Indonesia, maintaining protective rules might shield domestic industries in the short term but could also limit access to cheaper imports, discourage foreign investment, and slow development in sectors such as technology and manufacturing that depend on international supply chains. Strategically, this highlights Indonesia’s ongoing effort to balance engagement with the United States while preserving autonomy amid intensifying US–China rivalry.
Looking ahead, the United States may maintain or reinstate higher tariffs on Indonesian exports, and business confidence could weaken, particularly among foreign firms that had anticipated easier entry into the Indonesian market. Domestic industries that oppose liberalization, however, would avoid facing new competitive pressures.
A second scenario involves renegotiation and a weaker compromise. Indonesia may succeed in shifting some binding commitments to non-binding pledges, producing a diluted agreement with fewer reforms and slower implementation. This would preserve greater policy flexibility for Indonesia, but uncertainty about the deal’s stability could discourage foreign investors and prompt additional pressure from the United States.
A third possibility is a compromise with phased implementation. Both countries could agree on a core set of binding commitments such as tariff reductions and limited easing of non-tariff barriers while postponing more sensitive reforms for gradual rollout. This approach would give Indonesia’s domestic industries time to adapt, potentially attract new investment, and create more predictable long-term trade relations. It would also allow the Indonesian government to manage domestic stakeholders while still delivering some of the benefits of improved economic ties with the United States.
Several uncertainties will shape which scenario emerges. Broader geopolitical and economic conditions, such as shifts in global markets or tensions between the United States and China, could also affect the bargaining positions of both sides.
Ultimately, the outcome of the negotiations will influence far more than tariff levels. It touches on Indonesia’s market access policies, regulatory reforms, foreign investment climate, and international economic positioning. A gradual, compromise-based approach may offer a middle ground balancing protection with the benefits of deeper integration into global supply chains provided the reforms are credible and consistently implemented.
