The week of 14th July 2025 stands out as a pivotal time in Indonesia’s diplomatic and trade relations history. After delicate conversations between Washington and Jakarta, President Trump announced a temporary decision: nearly all Indonesian products entering the United States will face a 19 percent tariff, down from the initial 32 percent We still need to see the final details before knowing if this new rate gives our exports an edge over similar products from other countries also hit by Trump’s so-called “reciprocal” tariffs -- which is more accurately “unilateral” than “reciprocal.”

We should give credit to Indonesia’s negotiating team for their efforts. This marks the first time in our trade history that the highest leaders from both sides have been directly involved in hammering out a tariff deal. For Indonesia, this is about protecting millions of jobs in sectors like shoes, garments (both knitted and not), seafood (including frozen shrimp, tuna, skipjack, lobster, shellfish), palm oil products, and plantation goods like rubber (including gloves and tires). These are crucial steps -- and here’s why.

Trump’s negotiating methods may seem common at first. There is a classic tactic of negotiations called “door-in-the-face” (DITF), described by psychologist Robert B. Cialdini back in 1978. This is how it works: The first party starts by making a huge, likely unreasonable demand. When that’s rejected, they come back with a smaller, more reasonable request -- which was their real goal all along. The other side, feeling the urge to reciprocate, naturally agrees. It is social psychology in action.

In Trump’s case, the playbook takes different flows: first, roll out the high tariffs, backed by his annual US National Trade Estimate Report on Foreign Trade Barriers (NTER) listing grievances against US trading partners. Before the US even submits formal demands, Indonesia scrambled to respond to the tariff and non-tariff complaints and try to soften the blow.

Above all, Trump knows well that trade is a function of foreign policy. He uses tariffs not just for economic gain but as a tool for political, military, or ideological leverage -- his way of trying to “Make America Great Again” as China and other groups rise. For countries heavily reliant on the US market, there are not many alternatives, making these talks lopsided.

So, hats off to President Prabowo and team for what has been achieved so far. But as we wait for the full, final outcome -- and as we weigh the costs and benefits of the deal -- Indonesia needs to think hard about at least six key issues going forward:

Get the Big Picture Right: Indonesia must set clear, firm, and consistent geo-political and economic policies as a compass for all diplomats and negotiators. This will help safeguard Indonesia’s interests -- political, economic, social, cultural, defense, and security -- under our independent and active foreign policy. In the tricky context of trade with the US, Indonesia has to be prepared if Trump suddenly backtracks or reneges on deals, especially if we stand against the US on things like BRICS, Gaza, Iran, or Ukraine. Our responses need to put national interests front and center, never just siloed or sector-based.

Stay Neutral and Clear: Indonesia’s position -- whether with allies or rivals -- should be crystal clear: we are not abandoning the US, but neither are we fully siding with its competitors or adversaries. In other words, neutrality must guide both our words and actions as big powers vie for global influence. All our trading partners, from the US and WTO members to ASEAN and the EU (which just wrapped up the Comprehensive Economic Partnership Agreement with Indonesia), need to understand: Indonesia’s priority is to diversify trade for joint prosperity, not to take sides.

Check the Real Benefits: Any deal with the US needs to benefit Indonesia. Businesses should have the freedom to genuinely assess: Can their exports withstand a 19 percent tariff and still make money? Likewise, for imports, is it wise to source goods from the US, or are there better deals elsewhere? Transshipment remains a core American concern (think Chinese goods passing through Indonesia, or Indonesian products with Chinese investment “footprints”). The US applies penalty tariffs for this, and such standards should be mutual. For example, Indonesian soy imports from the US should not be Brazilian beans transshipped through the States. If they are, we should import directly from Brazil.

To avoid disputes, both countries should hammer out clear, strict “Rules of Origin” (ROO) so it is obvious which products deserve the agreed tariffs. These criteria -- like “wholly obtained,” “qualifying value content,” or “change in tariff classification” -- should be decided upfront to prevent costly hold-ups at the border.

Respect Global Rules: Indonesia must not ignore the “most-favored nation” (MFN) rule in the WTO and in our other trade deals: commit to treating all WTO members equally, except where stronger deals are spelled out in accordance with WTO rules on regional deals (e.g., GATT Article XXIV, GATS Article V). There is always room to protect local SMEs or ethical norms, but exemptions must apply universally to all trade partners.

Realistically, Indonesia has two options: convert our US tariff concessions into a formal bilateral agreement between the two, or grant the same perks to every other trade partner with similar deals. The logical way forward is to draft a special trade deal with America -- but this is not straightforward, especially if local content rules, quotas, export taxes, and import licensing come into play.

Push for Deep Reform: Here is the core dilemma: high costs, red tape, unclear rules, “illegal security charges,” overlapping permits, and often endless regulatory hoops --these have long frustrated both local and foreign businesses. President Prabowo has been clear: cut inefficiencies and uncertainty for a more dynamic economy. All of Prabowo’s ministers and officials should urgently act upon it in unison, not compartmentalized.
 
It is simply wishful thinking to expect that a single change -- a 19 percent tariff -- will draw a foreign investment boom. Let’s be honest: the 1 percent difference in Trump tariffs between Indonesia and Vietnam is minor and, given Vietnam’s efficiency, may not be enough to tip the scales. In the end, unless Indonesia embarks on full, value-chain-based reforms -- streamlining permits, unblocking supply chains, ensuring reliable electricity, and stamping out illegal “security payments” -- the same hurdles remain, tariffs or not.

Don’t Turn Away from ASEAN: Finally, ASEAN solidarity is not to be compromised. Since 1967, ASEAN has provided the regional political, security, and economic stability needed for members’ development. If the region is rocked by infighting or outside interference, every country’s welfare is at risk. 

Indonesia’s global standing is built in part on its ASEAN leadership; with 676.7 million people, ASEAN is 8.3 percent of the world’s population with diverse backgrounds, and Indonesia is integral as the world’s third-largest democracy and its largest Muslim-majority country. Indonesia, as ASEAN’s anchor, must work hard to keep the bloc united and to strengthen regional cooperation -- including economic integration through intra-ASEAN agreements, the ASEAN+1 free trade deals, and RCEP.

Likewise, now is the time to make the most of all existing bilateral and regional trade agreements -- like the soon-to-be-signed pact with the EU. It is time to stop playing the victim (oh, these trade deals hurt us, we didn’t mean it) -- Indonesia has shaped these negotiations; now we must follow through and adapt.

Kudos, then, to the government for its efforts at the negotiating table with the highly unpredictable President Trump. But if Indonesia wants to come out ahead in the global “tug of war,” we first have to win the battles at home -- only then can we seize lasting victories abroad.

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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.