Navigating Indonesia’s future in Trump’s America

It has only been a month since President Donald J. Trump reclaimed the White House, yet the scale and magnitude of his actions have shaken the foundations of the US-led international order. Unlike the first Trump Administration, this time the President shows no sign of flexibility in the pursuit of America’s interests, as he defines them. Every coercive economic instrument potentially is on the table.

As a middle-income country that depends heavily on an open global economy and rules-based multilateralism, Indonesia cannot afford Washington’s nativist economic turn, given its ambition to become the world’s fourth-largest economy by 2045. Only by committing to a diversified, high-quality trade and investment framework, and better integration into regional and global supply chains, can the Prabowo Administration shield Indonesia from the effects of an increasingly closed US economy. Australia may be a critical partner in that regard.

The United States and Australia historically have played an indispensable role in Indonesia’s economy. When Indonesia was in the grip of economic crisis in 1950s and 60s, Washington provided substantial foreign aid and facilitated debt rescheduling. This was later formalised in 1967 with the creation of the Inter-Governmental Group on Indonesia (IGGI), which brought together official donors in a consortium to coordinate foreign assistance. When another financial disaster struck in 1997-98, US leadership once again proved critical, as it mobilised influence through the International Monetary Fund (IMF) to help restructure Indonesia’s indebted economy. Australia also played a crucial role in both periods of crisis, contributing substantially to the IGGI (succeed from 1992 by the Consultative Group on Indonesia or CGI) and lobbing in Washington more sensitive implementation of the IMF assistance packages.

Casting forward to Trump’s first term, Washington began to unnerve Jakarta. Not only did he demonstrate opposition to the principle of free trade, but he also initiated a review of Indonesia’s Generalised System of Preferences (GSP) status, threatening to revoke duty-free access for thousands of Indonesian products. Joe Biden, whose term was book-ended by Trump’s two presidencies, continued the emphasis on onshoring and friend-shoring US investment. It failed to deliver new market access through the Indo-Pacific Economic Framework (IPEF) or climate financing support through the Just Energy Transition Partnership (JETP). In contrast, Canberra reassured Jakarta through its steadfast commitment to the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) and the Regional Comprehensive Economic Partnership (RCEP).

Canberra, like Jakarta, will be increasingly uneasy today. While the United States remains just as indispensable, it is no longer a reliable partner. Once a stabilising force, it has transformed into a temperamental great power. The second Trump Administration is not only wielding tariffs to correct trade imbalances, but also pursuing a broader strategy that seeks to punish any country or international institution that defies its interests.

So far, Trump has either threatened or imposed tariffs on China, Canada, and Mexico over fentanyl and illegal migration concerns and signalled a new “reciprocal” regime of trade barriers to counter “unfair” trade. He has also suspended foreign assistance to South Africa in response to its domestic property law and its lawsuit against Israel at the International Court of Justice.

While Indonesia and Australia share similar strengths, such as abundant critical mineral resources and large G20 economies, Indonesia is at a relative disadvantage in adapting to this new reality for several reasons. The first is that, as of 2024, the United States recorded a $17.9 billion trade surplus with Australia, whereas it ran a $19.3 billion trade deficit with Indonesia. That figure accounted for approximately 1.5% of the total US trade deficit in 2024, although it remained significantly lower than Vietnam, which accounted for 9.9% of the trade deficit, and Thailand, which accounted for a 3.73% share. 

The second reason is Indonesia’s non-aligned foreign policy. It contrasts with Australia’s position as a US treaty ally, integrated into multiple diplomatic frameworks, including ANZUS, AUKUS, the five-eyes intelligence network, and the Quadrilateral Security Dialogue. Meanwhile, under Prabowo’s leadership, Indonesia recently became the first Southeast Asian country to join the BRICS group, which includes Russia and China, even as Jakarta seeks to qualify for membership of the Western-led Organisation for Economic Cooperation and Development (OECD). What raises greater concern is the transformation of Indonesia’s foreign policy, with decision-making becoming more centralised under the President.

Third, Indonesia’s own market interventions, designed to support industrial development, leave it exposed to the vicissitudes of the Trump 2.0 trade regime. Indonesia often plays with fire by targeting foreign companies with onerous local content requirements, such as banning the sale of the iPhone 16 until Apple agreed to make supply chain investments and a mandatory requirement for Freeport McMoRan to build a copper smelter in exchange for extending mining rights.   The effect of these policies on big US companies makes Indonesia a soft target for Trump’s “reciprocal” penalties. 

While neither Indonesia nor Australia can predict or easily change Trump’s thinking, Australia could play a role as communicator, helping the US better understand Indonesia, much like Lee Hsien Loong of Singapore and the late Shinzo Abe of Japan did when engaging Trump on Indo-Pacific issues. At the same time, building on the strong rapport between the two countries, Australian leaders could quietly encourage their Indonesian counterparts to see the benefits of open trade and investment, while accelerating competitiveness through productivity enhancing domestic reforms. This can be facilitated through existing joint initiatives such as the Australia-Indonesia Partnership for Economic Development (PROSPERA) and the IA-CEPA Economic Cooperation Program (KATALIS).

Indonesia will struggle to navigate Trump’s new America effectively unless it becomes better integrated into diversified, high-quality regional and global supply chains via more open trade and investment regimes. In this regard, its accession to the OECD and Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) is more urgent than ever. Membership in these institutions would strengthen Indonesia’s appeal to Western investors by signalling its willingness to embrace a stable and favourable business environment that facilitated market access. As a prominent advocate of free trade, and with its existing membership in both the OECD and the CPTPP, Australia is well-positioned to help Indonesia secure accession and guide it through yet another critical juncture in its economic trajectory. 

Muhammad Habib Abiyan Dzakwan is a researcher at the Department of International Relations, Centre for Strategic and International Studies (CSIS) Indonesia.