1. Less Competitive Exports
   Higher tariffs make Indonesian products more expensive in the U.S. market, reducing their competitiveness compared to countries with lower tariff rates.

2. Risks to Labor-Intensive Industries
   Sectors such as textiles and furniture, which employ a large portion of Indonesia’s workforce, may experience declining demand, layoffs, and slower growth.

3. Disruption of Trade Advantage
   Indonesia’s strength lies in labor-intensive industries, but high tariffs undermine the benefits of free trade and specialization.

Insights from Trade Theories

Several international trade theories help explain how tariffs affect Indonesia’s position in global markets:

• Heckscher-Ohlin Model
  Countries export goods that use their most abundant resources. Indonesia, rich in labor, exports labor-intensive products. U.S. tariffs hurt these sectors by lowering demand and risking job losses.

• Comparative Advantage Theory
  Countries should export what they produce most efficiently. Tariffs on Indonesia’s main exports reduce the gains from specialization, as the U.S. might turn to countries like Malaysia with lower tariffs.

• Gravity Model of Trade
  Trade is usually stronger between large, nearby economies with low barriers. High U.S. tariffs on Indonesia create more friction and reduce trade flows.

• Stolper-Samuelson Theorem
  Tariffs can lead to income loss for workers in affected industries, especially those relying on exports such as textiles and footwear.

• Tariff and Welfare Analysis
  Tariffs raise prices and reduce efficiency. U.S. consumers pay more, while Indonesian exporters lose income.

• J-Curve Effect
  Tariffs may worsen trade conditions initially, but over time, the situation could improve if Indonesia finds new markets or reduces import dependency. The depreciating rupiah reflects early negative impacts.

Indonesia–U.S. Export Performance

According to BTKI 2022 data for the 2024 period, Indonesia’s exports to the U.S. remain substantial in several key sectors:

• Electrical machinery and equipment: USD 4.2 billion

• Knitted apparel and accessories: USD 2.5 billion

• Footwear: USD 2.4 billion

• Non-knitted apparel: USD 2.1 billion

• Animal and vegetable fats and oils: USD 1.8 billion

• Rubber and rubber products: USD 1.7 billion

These figures highlight that Indonesia’s exports to the U.S. are dominated by labor-intensive industries—those most exposed to tariff increases.

Indonesia’s Position in Global Tariff Comparison

In the global tariff landscape, Indonesia imposes 64% tariffs on the U.S., while the U.S. reciprocates with 32% tariffs on Indonesian goods. Other countries like Vietnam and Cambodia have even higher rates, while Malaysia and Thailand enjoy lower ones. This situation places Indonesia at a competitive disadvantage in international trade relations.

What Indonesia Can Do

To mitigate the negative effects of U.S. tariffs, Indonesia should take proactive steps:

1. Find New Export Markets
   Diversify exports to Asia, Africa, and Latin America to reduce dependence on the U.S. market.

2. Improve Product Quality
   Enhance efficiency and product standards to remain competitive despite higher tariff barriers.

3. Negotiate Trade Deals
   Pursue Free Trade Agreements (FTAs) with key trading partners to secure better tariff terms and market access.

Conclusion

The U.S. tariff hikes pose a serious challenge for Indonesia’s export economy, particularly for labor-intensive sectors. However, by diversifying export destinations, improving product competitiveness, and strengthening trade diplomacy, Indonesia can adapt to global trade dynamics and maintain its economic resilience in the face of rising protectionism.