Rebalancing Indonesia’s Trade Policy: After Prabowo’s First Year

More than one year into President Prabowo Subianto’s administration, Indonesia’s trade policy is navigating a tougher global environment. The US’ increasing use of tariffs, with frequent changes in rates and targets, has heightened uncertainty and created trade diversion, as China’s exports are redirected to other markets, including ASEAN. So far, official statistics show Indonesia’s exports rising by more than eight per cent year-on-year in the cumulative period from January to September 2025. Yet this short-term resilience, helped by frontloaded exports, raises the question of whether Indonesia can turn it into more durable trade competitiveness as uncertainties persist.

This year’s sharpest external shock has come from Washington’s trade policy. Although Indonesia is not a major US trading partner, it was drawn into the latest tariff round. In July 2025, Jakarta accepted a deal for a 19 per cent tariff on its exports to the US, down from the initially threatened 32 per cent. This came in exchange for Indonesia removing duties on most US imports and broader purchase commitments, such as for energy, agricultural products and aircraft. While the deal avoids a worse outcome, there are still uncertainties on the tariff implementation details and a risk that the deal may collapse.   

To signal greater trade openness, including in response to US pressure, the government has adjusted its import regime. Overall, these regulatory changes reflect a targeted adjustment to ease specific pressures rather than a genuine overhaul of Indonesia’s complex NTM framework. The Ministry of Trade Regulation 16/2025 and eight product-specific regulations, for instance, are presented as efforts to streamline non-tariff measures (NTMs) by expanding automatic licensing and relying more on post-border checks. However, while some NTMs have been relaxed for less sensitive products (for Indonesia), controls are tightened in sectors such as textiles and agricultural products.

Meanwhile, under the Ministry of Industry Regulation 35/2025, Indonesia has updated its local-content rules (TKDN), formalised certification and built an incentive-based system to increase firms’ compliance. The new regulation changes how a product’s local-content score is calculated: from the cost-based ratio of domestic to total inputs, firms are now assessed using fixed weights for domestic materials, direct labour, factory overhead, and locally performed research and development (R&D) in a structured checklist-style formula. Firms that invest in factories, employ Indonesian workers or conduct local R&D can earn higher TKDN scores and will have access to government procurement.

The government argues that the new formula is simpler and more transparent. In practice, TKDN still leaves room for discretion, for example, through exemptions, negotiated deals, and incentives that can be applied unevenly. The method is simpler, but real transparency and predictability will depend on implementation and whether there are clear public rules and consistent audits.

Taken together, Indonesia’s trade policy under Prabowo’s administration looks like a dual-track strategy.

This TKDN framework was shaped by Indonesia’s dispute with Apple. In October 2024, Indonesia blocked Apple iPhone 16 sales in-country due to local-content rules. Following lengthy talks, the government and Apple finally agreed on an investment package of around US$1 billion. This included Apple building an accessories and components facility in Batam, plus training and ecosystem programmes. Apple’s commitments are thus considered ‘local-content’ obligations, enabling iPhone products to return to the Indonesian market. Under the TKDN, Indonesia tried to leverage its large consumer base to extract commitments from Apple to promote industrial upgrading. Overall, however, the TKDN regulation has been applied mostly at the minister’s discretion, with rules and exemptions open to negotiation, raising uncertainty for investors.

In the mineral sector, Law 2/2025 gives the central government greater control over mineral production and exports. Export licence holders must meet domestic demand before they are allowed to export, while mineral processing projects are given longer, renewable concessions and more favourable royalty treatment. These measures aim to strengthen Indonesia’s bargaining position in global supply chains for strategic minerals. Nonetheless, the European Union (EU) see export bans as trade restrictions and has legally challenged Indonesia in the WTO – and won their case. This highlights the tension between free trade principles and countries’ use of protectionist industrial policies to promote domestic economic growth.

Against this background, in September 2025, Indonesia and the EU finally concluded their Comprehensive Economic Partnership Agreement (CEPA). While promising deep tariff cuts, the agreement comes with some demanding rules, including a palm oil protocol, an energy-and-raw-materials chapter and a trade-and-sustainable-development chapter that Indonesia’s parliament will likely scrutinise when it is time for domestic ratification. How far and fast Indonesia can align its domestic regulations with these new CEPA commitments is uncertain; meanwhile, disputes between the EU and Indonesia continue, which may also delay this CEPA’s implementation.

A separate CEPA with Canada, Indonesia’s first bilateral trade deal with a North American partner, is expected to cut most Canadian tariffs and create more opportunities for Indonesia’s textiles, processed foods, paper products and palm oil exports.

Taken together, Indonesia’s trade policy under Prabowo’s administration looks like a dual-track strategy. On one track, the government is deepening links with advanced economies through ambitious agreements like the CEPAs with the EU and Canada, while maintaining its relationships with traditional partners like the US, China and Japan, and pushing export diversification toward Latin America, the Middle East and Africa. On the other, Indonesia is managing industrial policy through more protectionist policies, including the TKDN, mineral downstreaming and various NTMs, to shield domestic firms from competition and leverage Indonesia’s large domestic market and resource endowments.

Whether this balance can further promote industrial and export competitiveness remains uncertain. A constructive way forward would be to treat the new CEPA agreements not as symbolic achievements but as anchors for domestic reform, for further simplifying NTMs, improving transparency and strengthening institutions that design and enforce trade rules. The deals with the US and EU leave Indonesia with substantial homework, from its handling of local-content rules and downstreaming policies to competition practices and environmental standards. If Indonesia can use current trade uncertainties to support internal change, Prabowo’s first year as president may be remembered as the juncture at which Indonesia’s trade policy began to underpin a more strategic, outward-looking industrialisation drive.

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