Jakarta. President Donald Trump’s suggestion that Indonesian businesses build manufacturing facilities in the United States is unrealistic, as it would increase production costs and hurt competitiveness, an economist said, as the Southeast Asian nation faces the prospect of 32 percent US tariffs starting next month.

“Building factories in the US would be far more expensive, and there’s no guarantee our products would even be accepted in their market,” Tauhid Ahmad, an economist at the Institute for Development of Economics and Finance (INDEF), told Beritasatu.com on Tuesday.

Trump announced on Monday that the US will impose a 32 percent tariff on Indonesian goods beginning Aug. 1 unless Indonesia invests in manufacturing facilities in America, extending the original July 9 deadline by another three weeks. The tariffs are part of Trump’s broader trade push aimed at reducing the US deficit and bringing manufacturing back to domestic soil.

In letters posted on Truth Social, Trump told Indonesian President Prabowo Subianto that Indonesia could avoid the tariffs by producing goods within the US, pledging to expedite permits for any Indonesian companies willing to invest.

But Tauhid argued that the cost structures in the US, particularly for labor and logistics, are significantly higher than in Indonesia, making the proposal impractical for most Indonesian businesses.

“Labor costs there are much higher, and sourcing raw materials is not as straightforward as in our home country,” Tauhid said. “If we need to export raw materials first and then produce in the US, the costs would only increase further.”

He also warned that producing goods in the US would not guarantee market acceptance and might end up being more costly than paying the proposed 32 percent tariff.

Tauhid suggested that instead of trying to avoid tariffs by investing in the US, Indonesia should focus on strengthening its domestic industries while diversifying export markets.

“Market diversification is much more important now. We need to reduce our dependence on the U.S.,” he said.

Indonesia has been working to ease tensions with Washington by pledging to increase imports from the US. Chief negotiator and senior minister Airlangga Hartarto is en route to Washington to negotiate following a BRICS summit in Brazil. Airlangga had said that Indonesia was preparing to sign a $34 billion memorandum of understanding with American business partners, including $15.5 billion in US fuel imports and investments involving Indonesia’s sovereign wealth fund, Danantara, and state-run companies. 

The US currently imposes a baseline 10 percent tariff on Indonesian goods, a rate shared with many other nations. Trump has warned that countries aligning with BRICS policies could face an additional 10 percent tariff, potentially putting Indonesia, a BRICS member, at risk of higher trade barriers.