Jakarta. A proposed 32 percent reciprocal tariff on Indonesian exports by the United States could shave up to 0.5 percentage points off Indonesia’s GDP growth this year if implemented, according to DBS Group Research.

The tariff, announced by US President Donald Trump on April 2, is currently under a 90-day delay, but market risks remain even if a lower base tariff of 10 percent takes effect, said Radhika Rao, Senior Economist at DBS.

“DBS Group Research’s impact analysis shows a direct hit of 0.5 percent to GDP growth this year and about half that next year if the higher tariff is reinstated,” Rao said in a statement on Monday.

Rao said the full economic effect would come on top of existing headwinds from slowing global growth. She said Indonesian policymakers would likely respond by stepping up efforts to stimulate domestic demand.

Although Indonesia’s exports to the US account for just about 2 percent of GDP --among the lowest in Asia alongside the Philippines and India-- the steep tariff level was “surprising,” she said, especially as it was influenced by broader trade imbalances, not just bilateral tariff differences.

The US is Indonesia’s third-largest export destination after China and ASEAN-5 countries, accounting for roughly 10 percent of total exports. Key export goods include textiles, seafood, footwear, palm oil, and electronics.

Labor-intensive industries are particularly vulnerable. Over half of Indonesia’s textile and furniture exports are shipped to the US, while one-third of US-bound exports come from the footwear sector.

“If the higher tariff is reimposed, the risk to local manufacturing units could escalate further,” Rao warned, pointing to ongoing challenges from softening factory activity and deflationary shocks stemming from Chinese exports.

Indonesia’s economy grew 5.03 percent in 2024, slightly below the government’s 5.2 percent target and last year’s growth of 5.05 percent, according to data from the Central Statistics Agency (BPS). 

The World Bank, in its Indonesia Economic Prospects report released in October 2024, forecasted Indonesia’s GDP growth to average 5.1 percent annually between 2024 and 2026, despite challenges such as declining commodity prices, rising volatility in food and energy prices, and geopolitical uncertainties.