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Indonesia should respond to Trump's tariffs with import deregulation
Indonesia needs to implement deregulation not because of pressure from the United States, but to ensure that Indonesia can become a competitive and attractive investment destination.
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President Prabowo Subianto addresses reporters on Tuesday after Danantara’s first town hall meeting at the Jakarta Convention Center (JCC) in Senayan, Central Jakarta.
(JP/Ruth Dea Juwita)
P
resident Prabowo Subianto has unveiled Indonesia's strategic plan to respond to United States President Donald Trump’s reciprocal tariff policies. Rather than pursuing retaliation, the government intends to provide greater access for US products in the Indonesian market.
President Prabowo plans to relax trade restriction policies and implement deregulation, particularly regarding import quotas and local content requirements (TKDN). These non-tariff regulations are indeed considered serious trade barriers for US products, as mentioned in the US National Trade Estimate (NTE) report.
This move has surprised various stakeholders. The economic ministers still appear hesitant to translate the President's wishes into more substantive actions. Even many parties who have been advocating for reforms remain reluctant to support this plan.
However, this is a step that Indonesia needs to take, primarily for two reasons.
First, enhancing national economic efficiency has become increasingly vital in light of the looming global recession driven by trade wars. As global demand slows, only the most efficient countries and producers will survive the crisis.
The non-tariff policies that the government has implemented thus far have largely been detrimental to the efficiency and competitiveness of national industries. Indonesia's non-tariff policies hinder companies’ competitiveness, resulting in suboptimal employment absorption in the manufacturing sector.
According to a CSIS study in 2022, local content requirements have failed to increase productivity in sectors they were meant to help, and have even impeded export performance in global markets.
