US trade deal could compel Indonesia to pick sides

The Indonesia–United States Agreement on Reciprocal Trade (ART) reaches far beyond conventional tariff negotiations. While public debate has focused on potential export gains, the deal also includes provisions on investment, subsidy transparency and alignment with US regulatory standards that, over time, could narrow Indonesia’s room for maneuver in shaping its own industrial policy and development strategy.

While the ART agreement sets a 19 percent tariff for Indonesia, it grants preferential access for 1,819 Indonesian tariff lines, including major exports such as crude palm oil, coffee, cocoa, spices, rubber, electronic components, semiconductors and aircraft parts. However, it is difficult to conclude that Indonesia can walk away from the deal entirely satisfied. The arrangement reflects less a partnership of equals than a transactional alignment shaped by US President Donald Trump’s evolving trade strategy.

Indonesia has long positioned itself as a neutral, nonaligned country that pursues an independent foreign policy and prioritizes its own national interests. However, Indonesia’s decision to sign the ART could potentially test this long-standing principle.

Several provisions in the agreement appear to place constraints on Indonesia’s economic and trade autonomy. Notably, Articles 5 and 6 contain clauses that suggest a degree of policy alignment with the US. Article 5.1.1, for instance, states that “If the United States imposes a customs duty, quota, prohibition, fee, charge, or other import restriction on a good or service of a third country […] Indonesia shall adopt or maintain a measure with equivalent restrictive effect as the measure adopted by the US.” Put simply, when the US moves against a third country, Indonesia may be expected to align.

Beyond this, other provisions in the agreement raise further concerns about Indonesia’s policy flexibility. Article 3.3 requires Indonesia to communicate with the US before entering into any new digital trade agreement that could affect US interests. Similarly, Article 6.1.5 requires Indonesia to restrict excess production from foreign-owned processing facilities in line with national mining quotas, covering critical minerals.

These provisions carry clear downside risks, potentially reducing investment and trade flows from key partners such as China, especially in strategic sectors like critical minerals and technology. They suggest that Indonesia’s ability to pursue trade and digital partnerships with other countries, particularly those viewed by the US as strategic rivals, may be subject to US scrutiny and potential economic retaliation through the reimposition of tariffs.

The alignment does not stop there, extending into broader economic policy. Article 5.2.2 requires Indonesia to establish a mechanism to review inbound investment for national security risks and to cooperate with the US on investment security matters. Indonesia may therefore need to screen foreign investors more carefully, especially if the US considers them a security risk. This provision could effectively constrain Indonesia’s ability to attract investment from countries viewed by the US as strategic competitors.

Although China is not explicitly mentioned in the agreement, the implications are clear. Much of the investment in Indonesia’s nickel downstream sector comes from Chinese firms, which have been instrumental in making Indonesia a major global producer. Indonesia’s plan to cut nickel ore production quotas in 2026 may therefore partly reflect efforts to align with US trade expectations. Yet the economic trade-off could be significant.

China invested about US$7.5 billion in Indonesia in 2025, largely in downstream industries such as nickel processing, logistics, telecommunications and EV batteries. That figure is far higher than the US’ $4.5 billion investment during the same period. Between 2019 and 2025, total Chinese investment reached around $44 billion, more than double the roughly $20 billion invested by the US.

Ultimately, the ART agreement illustrates the difficult balancing act Indonesia now faces in an increasingly fragmented global economy. While the deal may deliver short-term export advantages, it also introduces new layers of strategic alignment that could limit Indonesia’s long-standing policy flexibility.

For a country that has traditionally pursued a non-aligned and independent foreign policy, the challenge will be ensuring that deeper economic cooperation with the US does not come at the expense of broader strategic autonomy. In an era of intensifying geopolitical competition, Indonesia must carefully ask whether the gains from this agreement strengthen its position or gradually narrow the space for independent economic diplomacy.