Duggan Flanakin
Duggan Flanakin is a Senior Policy Analyst with the Committee For A Constructive Tomorrow.
In the throes of the summer, the Trump administration announced an Agreement on Reciprocal Trade with the Republic of Indonesia – the world’s third largest democracy – that builds on the 1996 US-Indonesia Trade and Investment Framework Agreement. Key features of the agreement relate to tariffs and other barriers to bilateral trade, environmental protections, and labor rights.
The agreement also takes note that Indonesia’s airlines agreed to purchase aircraft valued at $3.2 billion; agricultural products – soybeans, soybean meal, wheat, and cotton – with an estimated total value of $4.5 billion; and energy products – liquefied petroleum gas, crude oil, and gasoline – valued at $15 billion.
All of these purchases will benefit Indonesia’s growing economy as well as US manufacturers, farmers, and energy producers.
The agreement, a feather in the caps of both President Donald Trump and Indonesian President Prabowo Subianto, was reached following lengthy discussions between Treasury Secretary Scott Bessent and Indonesian Coordinating Minister for Economic Affairs Airlangga Hartarto. At one April meeting, Minister Hartarto had said, “We favor fair and square trade activities – Indonesia will boost its purchase of essential commodities from the US, such as oil and gas, as well as agricultural products.”
At that time, retired Indonesian diplomat Simon Hutagalung wrote an op-ed citing the substantial economic relationship between the US and Indonesia that in 2024 saw total bilateral trade in goods reach an estimated $38 billion, with the US exporting $10.2 billion and importing $28.1 billion: notably, footwear, textiles, agricultural products, rubber goods, and machinery.
Hutagalung urged both nations to build on their Comprehensive Strategic Partnership but cautioned that to reach the full potential of bilateral relations, the US must follow through on initiatives despite changes in domestic politics, while Indonesia must skillfully navigate the complexities of the geopolitical landscape – especially regarding a shifting US-China dynamic.
Then in June, Hartarto joined President Prabowo Subianto, Malaysian Prime Minister Anwar Ibrahim, and members of the Red and White Cabinet in a strategic forum to address global economic challenges, including the trade tariff negotiations with the US and efforts to enhance cooperation within Southeast Asia. The focus was on building a healthy, competitive business environment through reducing licensing barriers and simplifying import-export regulations.
Under the new agreement, Indonesia is eliminating about 99 per cent of tariff barriers for a full range of US industrial, food, and agricultural products exported to Indonesia, while the US is reducing reciprocal tariffs to just 19 per cent (an offset that accounts for cost-of-living differences) on goods originating from Indonesia. The two nations continue to negotiate facilitative rules of origin to ensure that the benefits accrue primarily to Americans and Indonesians – not third-party nations.
The US and Malaysia also agreed upon a 19 per cent export tariff deal.
Also under the agreement, the US and Indonesia will work to address Indonesia’s non-tariff barriers that affect bilateral trade and investment in priority areas. This includes ensuring that Indonesia will accept vehicles built to US federal motor vehicle safety and emissions standards, accepting FDA certificates and prior marketing authorizations for medical devices and pharmaceuticals, and addressing longstanding intellectual property issues.
Other key provisions ensure that Indonesia will remove barriers impacting digital trade, services, and investment, as well as barriers to US food and agricultural products sold in Indonesia. In return, Indonesia is removing barriers to the export of industrial commodities – including critical minerals – to the United States. Indonesia will also join the Global Forum on Steel Excess Capacity and take action to address this issue.
Within days of the US-Indonesia joint announcement, the US-ASEAN Business Council (USABC) and the American Chamber of Commerce (AmCham Indonesia), in collaboration with the Indonesian Ministry of Investment and Downstream Industry/BKPM, signed a Memorandum of Understanding (MOU) entitled “Technical Cooperation on Investment Support and Facilitation in Indonesia.”
The MOU builds on the long-standing partnership between USABC, AmCham Indonesia, and the Government of Indonesia by establishing a structured framework to facilitate ongoing collaboration, particularly in addressing policy bottlenecks, encouraging sustainable investment practices, and supporting Indonesia’s ambition to become a competitive hub in the global economic landscape.
The primary focus will be on priority sectors such as digital infrastructure, energy transition, healthcare, and advanced manufacturing – fulfilling President Prabowo’s ambitious vision to bring his nation to the forefront of the global stage. The MOU will rely on increasingly transparent communication through regular public-private dialogue to ensure a more predictable and investor-friendly environment across the archipelago nation.
One immediate beneficiary of the new US-Indonesia agreement is Garuda Indonesia, the national airline that is as old as Indonesian independence.
CEO Wamildan Tsani Panjaitan announced his goal of purchasing 50 to 75 new Boeing 737s and 787s to fulfill his growing domestic and international expansion plans. Garuda wants to add 100 new routes over the next five years.
Another beneficiary appears to be Indonesia’s national energy company Pertamina Hulu Energi (PHE), which is already seeking to purchase more liquefied petroleum gas from Texas-based Phillips 66 and other US oil and gas companies. Currently, Indonesia imports $5 billion of LPG a year, making the nation the world’s fifth-largest LPG importer – and 64 per cent of that comes from the US, a share that could rise as a result of the new US-Indonesia trade deal.
PHE has also been in negotiations with KDT Global Resources, ExxonMobil, and Chevron to purchase additional quantities of US crude oil – above the current annual imports valued at $12 billion – to be refined in Indonesia. Chevron and ExxonMobil have already agreed upon a $34 billion Memorandum of Understanding with Indonesia and PHE – that is geared not only toward expanding investment but also advancing technology and energy resilience.
However, at the heart of this deal is a significant commitment to energy collaboration.
ExxonMobil has over 125 years of presence in what is now Indonesia and will increase its oil output from its Cepu Block by 30,000 bpd (barrels per day) to reach 180,000 bpd – about a quarter of Indonesia’s national oil production.
Chevron’s commitment is to facilitate technology exchange and future exploration activities.
This focus on energy aligns with Indonesia’s push for self-sufficiency and sustainability in energy, while providing America’s firms with a strategic foothold in Southeast Asia, an increasingly vital region amid global supply chain realignments.
These are but some of the first fruits of the new US-Indonesia trade agreement. More will surely come soon, as these two growth-oriented national leaders and their highly focused lieutenants continue their dialogue.
This article originally appeared at American Spectator and was republished by CFACT.
