Indonesia’s recent scuffle with Apple over iPhone 16 sales offers a revealing window into the Prabowo administration’s emerging trade and industrial policy.
Like his predecessor Jokowi, President Prabowo Subianto wants to assert Indonesia’s economic sovereignty and transform the country from a mere consumer market into a high-tech manufacturing hub. But the standoff highlights a fundamental disconnect between Indonesia’s aspirations and its execution.
The dispute began in October when Indonesia banned iPhone 16 sales, citing Apple’s failure to meet regulations requiring 40% local manufacturing content. Apple responded with an initial US$10 million investment offer to build a factory in Bandung in partnership with its suppliers, later raising it to $100 million, including plans for research and development facilities and accessory component production.
The government rejected the proposal, with Industry Minister Agus Gumiwang Kartasasmita insisting that it “has not met principles of fairness.”
On December 5, Indonesia’s investment minister claimed Apple plans to invest $1 billion in a manufacturing plant in Indonesia that produces components for smartphones and other products and that the deal will be announced in the coming weeks.
On the surface, Indonesia’s negotiating position seems reasonable. With 280 million people, Southeast Asia’s largest economy doesn’t want to be just another consumer market for tech giants.
The government could point to Samsung’s at least $20 billion of investments and Oppo’s expanding presence as evidence that major companies can meet its terms. Indonesia’s desire to move up the value chain and develop domestic manufacturing capabilities is both legitimate and strategic.
As global supply chains fragment and companies seek alternatives to China, Southeast Asia’s largest economy should naturally be an attractive destination. However, the government’s confrontational approach to achieving these goals may be counterproductive.
Mandating local assembly without the ecosystem required for meaningful manufacturing can result in superficial compliance, with products being assembled just enough to meet origin requirements without fostering real industrial growth or technology transfer.
The iPhone ban’s effectiveness is also questionable. Apple commands just 2% of Indonesia’s smartphone market, and affluent consumers can easily purchase devices in neighboring countries such as Singapore or Malaysia.
There’s likely significant overlap between potential iPhone 16 customers and people who regularly travel to these neighboring countries, limiting the policy’s leverage.
Indonesia’s challenges become clear when comparing them to Vietnam, a regional competitor that has successfully attracted high-tech manufacturing. Vietnam, with a smaller population, hosts 35 Apple suppliers compared to Indonesia’s single component maker and has established itself as a hub for global supply chains.
Labor costs are significantly lower, with Hanoi’s minimum wage at $190 monthly compared to Jakarta’s $325. The country has also built world-class infrastructure, with three seaports ranked among the global top 50 for cargo throughput—Ho Chi Minh City (26th), Hai Phong (33rd), and Cai Mep (50th)—compared to just one from Indonesia.
Additionally, Vietnam’s 17 free trade agreements have enhanced its integration into global supply chains, making it a more attractive destination for manufacturing investments.
China offers another compelling example. Its success lies in fostering technology transfer and capacity building through policies such as mandating joint ventures between foreign and domestic firms.
These requirements compelled foreign companies to share technology with local partners as a condition for market access, enabling Chinese firms to acquire advanced technologies and expertise. Even this year, despite rising geopolitical risks, Apple CEO Tim Cook has reportedly said the company will increase investment and contribute to supply chain development.
Similarly, Vietnam has focused on creating a favorable business climate by implementing clear regulatory frameworks and offering incentives for high-tech industries while facilitating partnerships between foreign investors and local enterprises to encourage technology transfer.
The government estimates Apple generated 30 trillion rupiah ($1.9 billion) from product sales in Indonesia last year. Yet by taking such an aggressive stance without creating supporting conditions for manufacturers, Indonesia risks deterring the very investment it seeks to attract.
The rejection of Apple’s $100 million investment is likely to be perceived by many as inflexibility or unrealistic policymaking, potentially deterring other foreign investors.
Indonesia already struggles with a deficit of international recognition despite being the world’s fourth most populous country. To enhance its standing and attract meaningful investment, the country needs more than occasional displays of regulatory force.
It requires a sophisticated framework for wielding economic leverage that aligns domestic development goals with international business interests.
President Prabowo’s administration appears to be at a crossroads. With major economies turning inward and global supply chains shifting, Indonesia has an opportunity to position itself strategically.
But this requires moving beyond coercive policies toward creating genuine competitive advantages—streamlining regulations, developing infrastructure, and fostering technology transfer through incentives rather than demands.
In an era of fragmenting global supply chains and shifting power dynamics, raw market size isn’t enough—it’s how you leverage it that counts. Indonesia’s path to becoming a manufacturing hub depends not on forcing investment through market access but on building an ecosystem that naturally attracts and retains it.
Asher Ellis is a student at Yale University.
