Indonesian officials head to the US to offer incentives as part of tariff negotiations

JAKARTA – Top Indonesian economic officials will be heading to Washington next week in a signal of the country’s commitment to address the trade imbalance with the US.

Coordinating Minister for Economic Affairs Airlangga Hartarto told an investor gathering on April 8 that Indonesia will relax its Domestic Component Level policy – known as TKDN – on information and communications technology (ICT) goods, which had required Apple smartphones and tablets sold in Indonesia to have 40 per cent of their components made locally.

Indonesia, which ran a US$17.9 billion (S$24.2 billion) trade surplus with the US in 2024, is committed to balancing bilateral trade by importing more US agricultural products, among others, Mr Airlangga told the gathering in Jakarta attended by investors, analysts and fund managers.

“A number of non-tariff deregulation policies including the TKDN for the ICT that is requested by the US will be issued,” he said, while stressing that Indonesia will not take any retaliatory measures against the recently announced 32 per cent tariff that will be imposed by the US on Indonesia from April 9.

US President Donald Trump on April 2 announced sweeping tariffs – including a 10 per cent baseline tariff on all imports to the US and higher, country-specific tariffs based on existing trade imbalances.

A number of countries, including China, have decided on retaliatory measures in turn.

“Indonesia has opted to take a negotiation route, instead of retaliatory measures, with the US, because the US is a strategic partner,” said Mr Airlangga.

In Bangkok, Thai Finance Minister Pichai Chunhavajira said on April 8 that the country will increase US imports, lower some of the higher taxes on American goods and address non-tariff barriers, as it seeks to negotiate a better deal on new US tariffs, Reuters reported.

Indonesia’s main exports to the US are electronics, clothes and footwear, while the Asian country imports soya beans, wheat, telecommunications equipment, natural gas and aircraft.

Globally, Indonesia has the 15th largest trade surplus with the US, trailing Malaysia in 14th place and Switzerland in 13th place.

Mr Airlangga said Indonesia will also use platforms like the 1996 bilateral Trade and Investment Framework Agreement, known as Tifa, to raise trade concerns.

Indonesian President Prabowo Subianto has instructed him to raise imports of US agricultural products and other natural resources, the minister added, “especially agricultural products such as soya bean and wheat produced by the Republican stronghold states”.

For liquefied petroleum gas and liquefied natural gas, “we are not adding orders, but we will be shifting our purchases to the US suppliers”, Mr Airlangga added.

He also said that several Indonesian products such as gold, copper and furniture are not subject to high tariffs as Washington is in a trade dispute with Canada and needs alternative sources.

“This opens up opportunities for Indonesia to downstream and enter the US market, especially through footwear and clothing that are not considered strategic products by the US,” he added.

Mr Airlangga said companies such as Nike have contacted the Indonesian government directly to ensure the continuity of their production and exports from Indonesia.

The 32 per cent tariff imposed by the US followed a long tussle between Indonesia and Apple over the iPhone 16.

Indonesia in October 2024 banned the iPhone 16 series after Apple failed to comply with the country’s TKDN regulation.

Google’s Pixel phones faced the same restriction days later.

The ban by Indonesia, South-east Asia’s largest economy, was meant to push multinational companies to invest in local production, transfer technology and create high-quality jobs.

Companies could meet these requirements by manufacturing locally, developing software, or establishing research and development centres in the country.

Indonesia, one of the world’s largest mobile phone markets, had over 352 million cellular subscribers in 2023, according to the Central Statistics Agency.

Out of a population of 280 million, a quarter of mobile phone users had more than one device.

Apple initially offered a US$100 million investment to build an accessories and components plant in Bandung in West Java province, but the proposal was rejected.

Indonesia’s Industry Minister Agus Gumiwang Kartasasmita called the offer “unfair”, as he pointed to Apple’s significantly larger investments in Vietnam and Thailand.

The company had reportedly invested 400 trillion Vietnamese dong (S$21 billion) in Vietnam and over US$24 billion in Thailand.

Mr Agus also said that, unlike Samsung and Oppo, which had factories in Indonesia, Apple had yet to establish a manufacturing presence.

Meanwhile, Apple held nearly 12 per cent of Indonesia’s overall mobile phone market and dominated the premium segment, accounting for 40 per cent of devices priced above US$600.

Given Apple’s estimated local revenue of 30 trillion rupiah (S$2.4 billion) in 2023, the government had expected a larger investment commitment, analysts said.

Apple later increased its offer to US$1 billion, including plans to build a production facility on Batam island to manufacture AirTags.

While the offer was initially rejected, Jakarta signalled a willingness to compromise after criticism from US Treasury Secretary Scott Bessent, who described the Indonesian policy as a “non-tariff barrier” that could invite retaliation.

“In Indonesia, Apple can’t sell iPhone 16 because they don’t have enough local content. Why is that OK?” he was quoted as saying in a Fox News interview on Feb 13.

“A study being done… by the Treasury was going to give President Trump all the ammunition he needed to come up with a fair and balanced pushback,” he said then.

Indonesia then relented and lifted the Apple smartphone ban from April 11, with the company committing to opening two facilities: one to make AirTags in Batam and another to produce Apple accessories.