The current re-escalation of trade hostilities between the United States and China—marked most recently by the US reciprocal tariffs and China’s imposition of a 34% retaliatory tariff—has once again fragmented global supply chains and created dislocations in global trade flows. In this environment, Indonesia must avoid the temptation to retaliate and instead act with calibrated strategic opportunism.

In several public commentaries, I have consistently argued that “Indonesia’s strength lies in its neutrality, flexibility, and ability to convert crisis into opportunity.”

Donald Trump’s insistence on reciprocal tariffs has reintroduced tit-for-tat measures across the global trading system. With China’s retaliatory tariffs reaching 34% in response, we are witnessing not just a trade conflict but a long-term restructuring of global trade relationships.

For third-party economies like Indonesia, the primary impact is not direct exposure, but trade diversion, investment relocation, and supply chain fragmentation. The key challenge lies in turning these disruptions into strategic advantages.

Indonesia’s Strategic Posture: Negotiation over Retaliation

Indonesia has made a deliberate choice to negotiate rather than retaliate—a policy that, in my view, is both economically prudent and geopolitically sound.

as i repeatedly saying that our leverage comes from our neutrality, not from confrontation.

This neutral stance enables Indonesia to access preferential treatment, maintain strategic optionality, and project itself as a reliable partner in a volatile trade environment.

Strategic Opportunities for Indonesia

1. Trade Diversion and Export Expansion

With the US and China closing their markets to each other, there is space for Indonesia to fill the vacuum:

– To China: replacing US exports in soybeans, energy products, and food processing.

– To the US: replacing Chinese imports in footwear, apparel, electronics, and natural rubber.

2. Investment Diversion and Supply Chain Realignment

Global firms are seeking alternatives to China-based production due to rising tariffs and regulatory uncertainty. Indonesia must position itself as a preferred relocation site, particularly in semiconductors, automotive components, and digital manufacturing.

3. Leverage in Bilateral Negotiations with the US

Indonesia’s non-confrontational posture opens the door for:

– Renewal and expansion of GSP preferences.

– New sector-specific partnerships in green energy, digital trade, and rare earth value chains.

4. Deepening ASEAN Economic Integration

Regional production networks will become more important as global ones fragment. Indonesia must push for ASEAN-wide trade facilitation, interoperable logistics, and tariff harmonization to ensure competitive regional positioning.

Policy Recommendations

1. Strengthen Trade Diplomacy

– Advance strategic economic dialogues with both the US and China.

– ⁠Utilize Indonesia’s ASEAN de facto leadership to coordinate regional responses.

2. Enhance Investment Competitiveness

– Provide targeted fiscal incentives for relocation industries.

– ⁠Streamline licensing and land access for high-tech and export-oriented firms.

3. Accelerate Export Diversification

– Support sectors with high substitution potential via financing, branding, and market access.

– ⁠Invest in market intelligence for shifting US and Chinese import patterns.

4. Pursue Domestic Regulatory Reform

– Expedite the simplification of customs and trade facilitation procedures.

– ⁠Improve infrastructure connectivity to industrial zones and ports.

5. Use Strategic Communication

– Present Indonesia as a reliable, neutral, and reform-minded investment destination.

– ⁠Launch a global “Opportunity in Stability” campaign targeting multinationals relocating from China and US

Conclusion

the current global dynamics are windows of opportunity for agile economies. As global supply chains recalibrate and trade routes reroute, Indonesia must act with precision and foresight.

With the right mix of diplomacy, reform, and ambition, Indonesia can turn external disruption into long-term competitive advantage.

Fithra Faisal Hastiadi, PhD

Senior Chief Economist at Samuel Sekuritas Indonesia (SSI)

Faculty Member at the Faculty of Economics and Business, Universitas Indonesia (FEB UI)

Vice Chairman of the Permanent Committee on Digital Transformation Strategy at the Indonesian Chamber of Commerce and Industry (KADIN)

I am using three of my relevant books as references:

1. Trade strategy in East Asia (https://link.springer.com/book/10.1007/978-1-137-56967-7)

2. ⁠Globalization, Productivity and Production Networks in ASEAN (https://link.springer.com/book/10.1007/978-3-030-16510-9)

3. ⁠Economic Resurgence in ASEAN (https://link.springer.com/book/10.1007/978-3-031-53410-2)