Resipprocal Tariff Drops To 19 Percent, Indonesian Government Don't Be Complacent

JAKARTA The government is advised not to be complacent with the 19 percent reciprocal rate from the United States (US). According to observers, this resipprocal rate can even harm the Indonesian agricultural sector.

US President Donald Trump announced a new trade deal with Indonesia after speaking directly with President Prabowo Subianto.

In the agreement, Indonesia was charged 19 percent, down from the previous 32 percent. However, goods from the US that enter Indonesia are not subject to tariffs or zero percent.

As part of the agreement, Indonesia is also said to be committed to buying US $ 15 billion worth of energy (equivalent to Rp244.27 trillion), agricultural products worth US $ 4.5 billion (Rp73.32 trillion), and 50 Boeing jets including the Boeing 777 model.

"A great deal, for everyone, has just been made with Indonesia. I transacted directly with their highly respected President," Trump said, referring to Indonesian President Prabowo Subianto, in a post on his social media platform, Truth Social.

At first glance, the reduction in the resipulation rate set by the US government for Indonesia looks profitable, especially with the fact that there was a decrease from the previous 32 percent to 19 percent.

In addition, the 19 percent reciprocal rate also places Indonesia as the country with the second lowest tariff in Southeast Asia, after Singapore, which is subject to 10 percent.

Thus, Indonesia's tariffs are lower than Vietnam and the Philippines, which are subject to 20 percent, Malaysia and Brunei Darussalam (25 percent), Thailand and Cambodia (36 percent), and Myanmar and Laos which reached 40 percent.

However, Executive Director of the Center of Economic and Law Studies (CELIOS) Bhima Yudhistira reminded the government not to be complacent with the reduction in US import rates for Indonesian products. According to Bhima, there is a big risk behind the agreement.

He assessed that the reduction in tariffs was accompanied by the reward of free access for US products entering the Indonesian market. This, he said, contradicts the food self-sufficiency program that is being boosted by the government.

"If Indonesia only focuses on being happy with the 19 percent reciprocal rate, it does not solve the fundamental problem. The domestic market will be flooded with agricultural products from the US, such as fruit, wheat, and soybeans. This is a contradiction to the future food self-sufficiency agenda," said Bhima.

Not only that, according to Bhima, the reduction in the reciprocal rate has actually made Indonesia's position weak and it is feared that it will become an example for other countries.

"It can be a tempplate too. It means that if you want to suppress Indonesia's position, follow the way of Donald Trump. Press Indonesia to import more products from abroad, even the tariff can be zero percent," said Bhima.

"Meanwhile, Indonesia's goods to export destination countries have been hit by 19 percent. So, actually this is a less good precedent," added Bhima.

In addition, other requirements require Indonesia to import fuel, LPG, wheat, agricultural products with a fairly large contract value in the long term. So according to him, this is not a profitable negotiation for Indonesia.

Bhima explained, one of the impacts of the resipprocal tariff was the surge in imports of agricultural products from the US which had an impact on Indonesian farmers. According to him, the US will greatly benefit from the penetration of wheat exports to Indonesia because of the zero percent tariff.

This, according to Bhima, must be watched out for following the government has a food self-sufficiency target through empowering local farmers and food producers.

"Consumers may be happy that the price of instant noodles and bread will fall, but local food producers will be affected by the negative impact," he said.

In the final decision, the US gave Indonesia a lower reciprocal rate than Vietnam, which received a tariff of 20 percent. Bhima assessed that this did not necessarily make Indonesia superior to Vietnam.

"If the difference is only one percent with Vietnam, we have the competitiveness to lose to Vietnam regarding the manufacturing industry. Not to mention the production costs and low logistics costs there. It means that the winner is still Vietnam, relocation remains to Vietnam," explained Bhima.

Similarly, Executive Director of the Institute for Development of Economics and Finance (Indef) Esther Sri Astuti also believes that this does not mean that the flow of investment in Indonesia will be better than Vietnam.

"Besides, one percent is a small number," said Esther.

Even though there are differences in the export structure with Vietnam, Indonesia still needs to be smart to be able to provide a profitable investment climate in order to help export growth.

"So this investment climate must be addressed. For example, if we look at investment websites that are not user friendly. Opened, click, it turns out that PDF regulations are in Indonesian," he concluded.