Indonesia Needs to Audit Trade Agreements After the Cancellation of Trump's Reciprocal Tariffs

JAKARTA - Economic observer from Andalas University Syafruddin Karimi assessed the decision of the United States Supreme Court to cancel US President Donald Trump's reciprocal tariffs as an affirmation of the limits of executive authority in trade policy.

He added that the ruling forced the US government to change its strategy in pressuring trading partners.

"This ruling cuts off the emergency tariff path based on IEEPA, then encourages Trump to use other devices such as Section 122 which is temporary and Section 301 which is based on investigations. This transition does not remove trade pressure, this transition breaks down the pressure into a package of instruments that are more legalistic, more selective, and easier to insert through the treaty clauses," he told VOI, Sunday, February 22.

According to him, the risk of the emergence of US poison pills is getting bigger, namely when the broad tariff is difficult to maintain, the US has the potential to lock in its interests through articles that contain the right to unilaterally raise tariffs (snapback), supply chain compliance obligations, restrictions on digital policies, to the terms of treatment of third countries.

"Indonesia must read the Supreme Court's decision as a sign that the tariff war has changed form into a clause war," he explained.

He added that for Indonesia, the signing of the Agreement on Reciprocal Trade (ART) RI-US on the one hand could open opportunities for market access stability, but on the other hand risked limiting policy space if it contained harmful clauses.

Karimi said the US had signaled that trade agreements must be respected even if the tariff regime changed, meaning that Indonesia could be bound by the tariff results of the agreement even if the universal tariff was reduced.

According to him, the biggest risk is not only in the amount of tariffs, but in provisions that can limit national policies.

He gave examples, such as the obligation of cross-border data standards, intellectual property protection which has the potential to increase the price of drugs, procurement rules that weaken the domestic industry, non-discrimination provisions that conflict with the downstream program, to clauses that link tariff preferences with certain foreign policies.

"ART must be a vehicle for improving competitiveness, not a contract that transfers policy control to US enforcement mechanisms," he said.

He added that to anticipate this, the Indonesian government was considered to need to immediately take three main steps, namely auditing clauses, strengthening bargaining positions, and mitigating economic impacts.

Karimi said that first, the government needed to conduct a thorough evaluation of potentially harmful articles, such as the right to unilaterally raise tariffs, automatic investigation clauses that trigger sanctions, restrictions on digital policies and digital services taxes, intellectual property and pharmaceutical provisions that strengthen monopolies, too strict rules of origin, and articles that limit diversification of trading partners.

He added that the technical implementation must be designed to be in the interests of national industries, including through the establishment of a list of priority products, a schedule for a measured tariff reduction, customs facilitation, and a rapid consultation mechanism to prevent escalation of disputes into additional tariffs.

Furthermore, the government needs to prepare an economic adjustment package, such as incentives for increasing export productivity, strengthening the traceability system (traceability) and compliance with labor and environmental standards, export financing support, and market diversification strategies to anticipate trade diversion.

According to him, the impact on the Indonesian economy will depend very much on the quality of the agreed clauses, namely fair and balanced clauses that can maintain the investment climate, reduce risk premiums, strengthen exports, and protect industrial policy space.

Meanwhile, the biased clause has the potential to increase production costs, suppress the labor-intensive sector, increase exchange rate uncertainty due to market sentiment, and lock in a trade structure that is more beneficial to the US when the tariff regime changes again.