The state of the US economy and Donald Trump’s departure from multilateral trade norms have left many countries, including Indonesia, adrift in developing regional and global supply chains to support national economic growth.

As Trump’s reciprocal tariff negotiations with trade partners remain unresolved, complicated further by domestic political and economic issues, another shock hit the global system: Israel launched a direct attack on Iranian strategic targets on Friday, June 13. Iran’s retaliatory strikes in the days that followed brought the world to the sobering realization that the Middle East, a key artery of global trade, is now facing a severe security crisis.

Oil prices immediately surged. Benchmark prices for Brent and WTI crude jumped more than 7% in a single day, with intra-day spikes reaching 13%, the biggest jump since early 2022. This reflects growing fears over potential disruptions to oil supply from the Middle East, which accounts for a significant share of global oil and LNG exports. Roughly 20% of the world’s oil passes through the Strait of Hormuz daily. Even partial disruptions can trigger volatility and increase the risk premium in global energy markets. Analysts warn that if the strait is closed for an extended period, oil prices could soar to $100–$120 per barrel or higher.

Global supply chains via the Suez Canal are also facing long-term disruption. Since the Gaza war erupted on October 7, 2023, commercial shipping in the Suez route linking the Mediterranean and Red Seas has been diverted around Africa due to security concerns. A full-blown proxy war between Israel and Iran would further destabilize the region, not only for shipping, but also for commercial aviation routes that normally fly over these countries’ airspace.

Amid this uncertainty, two significant developments emerged. First, Indonesia’s delegation negotiating reciprocal tariffs with the US in Washington, DC, stated that Indonesia’s proposals are complete and awaiting a US response. The tariffs are expected to take effect on July 9, 2025. Observers predict that just days before this date, Trump will issue a “take it or leave it” ultimatum to several countries. The final outcome of the US-Indonesia deal remains unclear; will it be a win-win, or will the U.S. walk away with more? The talks are inherently asymmetric, as the US excludes military goods and services from its trade deficit narrative with Indonesia.

While awaiting Washington’s decision, the government also announced that the Indonesia-EU Comprehensive Economic Partnership Agreement (IEU-CEPA) is in its final stage. This is promising progress, considering how difficult the talks have been since their launch in 2016. However, the agreement likely won’t be effective before the end of 2026 due to three reasons: legal scrubbing to ensure consistency and clarity; translation into official languages, including 24 languages for complex EU agreements or just English, French, and German for simpler ones; and ratification by the Indonesian parliament and, separately, the EU Council and European Parliament.

Indonesia must also anticipate the Most Favored Nation (MFN) implications of its tariff offers to the US under IEU-CEPA. If Indonesia agrees to a 0% import tariff for U.S. alcoholic beverages, EU countries like France, Italy, the Netherlands, and Germany may demand equal treatment. This could delay the ratification process, as market access terms may have to be renegotiated, even if only for a few tariff lines.

It’s clear that Indonesia must act swiftly to safeguard export markets amid a world fractured by not just North-South economic interests, but also politics, ideology, and potentially even racial or religious sentiment. But if U.S. policy remains uncertain and the EU deal is still far from implementation, what quick wins can Indonesia secure to protect export revenue? In the digital era, speed trumps size. It’s time to revisit past FTAs and CEPAs and reassess their relevance in today’s shifting global landscape.

Richard Cobden, a 19th-century British statesman and economist, believed that free trade promotes peace and prosperity through healthy interdependence. His view is more relevant than ever as global supply chains, once dominated by major economies, are now being disrupted by the very powers that once championed globalization.

Global trade under the WTO has never been perfect—it struggles to keep pace with technological changes reshaping commerce. Still, WTO rules remain the foundation for cross-border trade among 164 of the world’s 193 countries. The fact that no country has left the WTO since its founding in 1995 suggests that its legal structure remains essential.

Yet global trade has grown increasingly uncertain, especially since Trump’s tariff policies defied WTO principles and inspired copycat measures. Ongoing military tensions, especially the escalating Israel-Iran conflict, have exposed the risks of economic overreliance on a handful of countries. Chris Policinski, CEO of Land O’Lakes, warned that excessive dependence on just one or two markets can trigger broad economic fallout. Diversification and economic self-reliance are critical for long-term stability.

Against this backdrop of fragmentation, Indonesia should focus on fully utilizing its existing FTAs, CEPAs, and PTAs as a strategy to diversify markets. Bilateral deals include those with Japan, South Korea, Australia, Chile, and the UAE; PTAs exist with Pakistan, Mozambique, and Palestine. Regionally, Indonesia is part of ASEAN FTAs with China, India, Korea, Japan, and Australia–New Zealand, and also a founding member of RCEP—the largest regional trade deal globally, covering 30% of world GDP and nearly one-third of the global population.

Indonesia must now prioritize partnerships in the relatively stable Indo-Pacific. With minimal disruptions, this region offers the best path to secure and deepen trade. Through RCEP, Indonesia can access a vast market, simplify rules of origin, and remove 90% of tariffs across member states. It’s an opportunity to shift away from raw commodity exports and move toward industrial transformation through value-added manufacturing in sectors like automotive, electronics, and chemicals, particularly with Japan, Korea, and China seeking reliable production partners.

Some indicators are promising: Indonesia’s exports to RCEP countries hit $168 billion in 2023—over 60% of its total exports. RCEP member countries like China, Japan, and South Korea contributed more than $17 billion in FDI in 2023. Industrial products such as steel, vehicles, and electronics are starting to penetrate new East Asian markets.

Vietnam has outpaced Indonesia in leveraging RCEP. Its exports to RCEP countries have grown over 70% in five years, compared to Indonesia’s 30%. Vietnam’s proactive industrial policy, investor-friendly reforms, and targeted incentives are driving its success. Indonesia has the potential to catch up—it has a large domestic market, abundant labor, and strategic geography.

But RCEP could become a trap if domestic reforms lag. Key challenges persist:

1. Limited industrial capacity – Only 13% of Indonesian SMEs are integrated into global supply chains, compared to 21% in Vietnam.

2. High logistics costs – Domestic logistics consume 23% of Indonesia’s GDP, far above RCEP’s 10–15% average.

3. Low-quality workforce – Only 12% of college graduates come from science and engineering, undermining industrial innovation.

Rather than avoiding these latent issues, Indonesia must address them while utilizing RCEP. Five parallel strategies are needed:

• Regulatory harmonization: Simplify cross-border trade rules, standardize product certifications, digitize customs via the Indonesia National Single Window (INSW).

• Value-added industrialization: Target sectors like processed foods, electronics, and chemicals to integrate into RCEP’s value chains.

• Logistics infrastructure: Invest in ports, modern industrial zones, and inter-island connectivity.

• Regional engagement: Empower local governments to promote exports and plan industrial roadmaps.

• SME empowerment: Expand incubation, export training, and legal aid to help SMEs enter RCEP markets.

RCEP is more than just market access, it’s a chance to restructure Indonesia’s economy. Time is short, but with bold reforms, Indonesia could become a pivotal player in Asia’s rising trade network. As Snapchat’s Evan Spiegel put it: “Don’t worry about the competition. Focus on your product and your customer.” The choice is ours: seize the moment and lead, or fall behind.

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Iman Pambagyo is the Trade Ministry’s Director General of International Trade Negotiations (2012-2014, 2016-2020) and Indonesia’s Ambassador to the WTO (2014-2015).

The views expressed in this article are those of the author.