Indonesia's Economic Growth Will Be Affected By Trump's Tariff Negotiation Outcome

Several economists have several scenarios projecting Indonesia's economic growth in 2025 amid the heating up of the tariff war initiated by the import tariff policy of the President of the United States (US) Donald Trump. 

The Prabowo Subianto government itself is targeting economic growth this year to reach 5.2%. Meanwhile, Bank Indonesia (BI) estimates economic growth in the range of 4.7%-5.5% in 2025. 

Economists say that the projection of Indonesia's economic growth in 2025 will be influenced by the results of tariff negotiations between the Indonesian and US governments over the next 60 days. 

Head of Macroeconomics and Finance of Indef Muhammad Rizal Taufikurahman said that if trade tariffs between Indonesia and the US were reduced to 0%, this would be a breath of fresh air for Indonesian exports. Leading products such as textiles, furniture, and electronic components would gain much stronger price competitiveness in the US market. 

As a result, local exporters will be encouraged to increase production capacity and investment, thus creating a multiplier effect on the workforce and national income. However, Rizal said, maximum benefits will only be achieved if industrial and infrastructure policies support the expansion of the export sector by increasing foreign exchange and added value simultaneously. 

"In macro terms, this condition will strengthen the trade balance and can be one of the drivers of economic growth. Assuming other variables are stable, such as domestic consumption and investment continues to grow, then national economic growth will have the opportunity to be boosted this year, above 5.0%," Rizal told Kontan, Monday (21/4). 

On the other hand, if negotiations fail and high tariffs are imposed at a total of 30% plus 10%, the impact will be very severe for Indonesia's export performance. 

Many industrial players, especially those dependent on the US market, will experience a drastic decline in demand. This has the potential to reduce factory utilization, worsen company cash flow, and trigger a wave of layoffs in labor-intensive sectors. 

As a result, Rizal said, the macroeconomic impact is on the weakening of exports as the main component of GDP. In addition, pressure on the rupiah and the current account could increase due to the trade deficit. 

"In this scenario, Indonesia's economic growth will likely be corrected to around Below 5.0%. Without expansive fiscal and monetary policies and an aggressive market diversification strategy, this pressure could become deeper," explained Rizal. 

On the other hand, JP Morgan projects that Trump will impose an average tariff of 20% on countries negotiating with the US. So if this scenario occurs, Rizal estimates that the tariff burden will still reduce the competitiveness of Indonesian product prices in the US market. 

Tag: Bank Indonesia Donald Trump Muhammad Rizal Taufikurahman