TRADE debates often begin with numbers. Yet, global trade rarely turns on the numbers themselves. It turns on relative positioning.
This is why the recent Indonesia-United States trade agreement should not be read through simple tariff arithmetic.
The widely cited figure, a 19% reciprocal tariff, appears, at first glance, less favourable than a global tariff environment of around 15%.
But that comparison misunderstands how export competition actually works.
Indonesia does not primarily compete with US producers in the US market.
It competes with exporters from other countries.
In practical terms, the United States is a third-country competition space, an arena where relative tariff treatment, not bilateral symmetry, determines competitiveness. Seen from this perspective, the agreement looks very different.
The relevant baseline was not 15%.
It was the previously imposed unilateral reciprocal tariff of around 32% on Indonesian exports. Reducing that rate to 19%, combined with tariff exemptions for many priority export products, represents a clear improvement in Indonesia’s competitive position.
Trade economics has long recognised that what matters is not the absolute tariff level, but the tariff differential relative to competitors. This concept, known as the preference margin, often shapes trade flows and supply chain decisions more strongly than headline tariff rates.
Even small differences in relative tariffs can redirect production, investment and sourcing strategies.
For multinational firms, a few percentage points can determine whether manufacturing takes place in Vietnam, Mexico, Bangladesh or Indonesia. In that sense, the Indonesia-US agreement moves Indonesia from uniform competition to differentiated competition.
Under a uniform global tariff, all exporters face similar barriers.
Indonesia becomes one among many suppliers competing mainly on cost. Under a differentiated tariff structure, where many products face lower or zero tariffs, Indonesia gains strategic positioning that extends beyond current trade flows.
Companies interpret tariff structures as signals about medium-term production geography.
The shift toward supply chain diversification, often described as “China+1”, has made such signals increasingly influential.
Firms are not simply reacting to today’s tariffs; they anticipate where stability and relative cost advantages may emerge.
The agreement, therefore, has implications not only for exports but for investment and supply chain configuration.
This also explains why a common criticism is misplaced: the claim that Indonesia “opens its market” with zero tariffs while the United States maintains tariffs.
This framing overlooks a basic principle of trade economics: tariffs are largely paid by domestic consumers in the importing country. When Indonesia reduces import tariffs, the immediate effect is lower consumer prices and lower input costs for domestic industries.
Liberalising imports is not primarily a concession to trading partners. It is a domestic efficiency policy.
Concerns that cheaper US imports will displace Indonesian producers must be assessed in a structural context.
Many products central to the agreement, energy, agricultural inputs and specialised commodities, are not goods Indonesia produces at scale.
In such cases, tariff reductions change suppliers, not domestic production.
Energy imports from the United States represent diversification of supply sources rather than displacement of domestic output. The same logic applies to wheat, where Indonesia has little domestic production.
Debates about “opening markets” often conflate two policy questions: protecting domestic industries and ensuring efficient access to production inputs. In many sectors, zero tariffs function primarily as cost-reduction tools that enhance domestic competitiveness.
The third area of debate concerns nontariff barriers. These are frequently interpreted as pressure for deregulation.
In practice, the issue is not removing regulation but ensuring non-discriminatory treatment. Indonesia retains full policy space to apply value-added taxes, technical standards, food safety rules and halal requirements.
What trading partners seek is consistency, rules that apply equally across suppliers. From this perspective, non-tariff barriers are governance questions rather than sovereignty questions.
The halal issue illustrates this clearly.
The core concern is not lowering standards but avoiding duplication through mutual recognition.
When products have already been certified by credible institutions abroad, repeating identical procedures adds costs and uncertainty without necessarily increasing consumer protection.
Reducing duplication lowers transaction costs, shortens time-to-market and improves regulatory credibility, reforms that benefit Indonesia.
More broadly, non-tariff measures in Indonesia often evolve in fragmented ways across sectors.
External negotiation can, therefore, serve as a catalyst for regulatory modernisation, encouraging transparency, coherence and procedural efficiency.
In this sense, the agreement functions not only as a trade instrument but as a reform trigger.
The final issue concerns trade balance pressures. Calls for rebalancing are often interpreted as bilateral demands.
In reality, trade imbalances are systemic features of the global economy.
Large structural surpluses in some economies and persistent deficits in others have long shaped trade tensions.
These patterns reflect growth models, industrial strategies, and, in some cases, exchange rate dynamics.
The pressures visible in US trade policy are not primarily directed at Indonesia.
They reflect broader concerns about global imbalances, particularly those associated with China’s scale of manufacturing and export capacity.
Understanding this distinction matters. — The Jakarta Post/ANN
Mohamad Ikhsan is an economics professor at the University of Indonesia. The views expressed here are the writer’s own.
