Indonesia contributed $23.7 billion to the US merchandise trade\ndeficit of $901 billion in 2025, representing less than 3 per cent.\nHowever, in the National Trade Estimate Report 2025, the USTR\u2019s annual\nreport that serves as the basis for trade investigations, the US\ndocumented 39 barriers against Indonesia, equivalent to the European\nUnion despite its trade deficit being nearly ten times larger. Indonesia\nreceived 1.64 barriers per billion dollars of deficit. China received\n0.25. Mexico received 0.04.<\/p>\n
Data from Global Trade Alert mapping the NTE 2025 revealed 398\nbarriers across 25 priority countries. The results disclosed that\nsmaller economies received greater documentary attention per dollar of\ntrade. The Philippines and Japan each had approximately 19 to 21\nbarriers, although Japan\u2019s trade share was 23 times larger. Indonesia\nstood out more markedly.<\/p>\n
Of the 39 barriers, 35 specifically referenced Indonesian\nregulations, the highest proportion among the 25 countries. Mapping\nagainst the ART text showed that 29 of these 35 regulations had direct\ncorrespondence with Indonesia\u2019s commitments in the agreement.<\/p>\n
A comparison with Malaysia sharpens this picture. According to 2025\nUS Census data, the US deficit with Malaysia ($30.8 billion) was even\nlarger than with Indonesia, yet Malaysia had only 12 recorded barriers.\nMalaysia\u2019s effective tariff rate stood at 8.7 per cent, less than half\nIndonesia\u2019s effective rate of 19.7 per cent. Malaysia\u2019s ART even\ncontained a \u201cright to regulate in the public interest\u201d clause absent\nfrom Indonesia\u2019s ART.<\/p>\n
214 Versus 9<\/p>\n
The phrase \u201cIndonesia shall\u201d appeared 214 times across 45 pages of\nthe ART text. \u201cUnited States shall\u201d appeared 9 times. Anyone could\nverify these figures. Of the 214 phrases, only 4 used the qualification\n\u201cshall endeavour\u201d or \u201cshall strive\u201d of an effort-based nature. The\nremainder were mandatory without qualification.<\/p>\n
Of the 9 \u201cUnited States shall\u201d phrases, 5 were binding and all\nconcerned tariffs or market access. The remainder were effort-based or\ndiscretionary, using language such as \u201cshall work\u2026 to consider\u201d and\n\u201cmay.\u201d<\/p>\n
Indonesia\u2019s obligations were structural and required legislative\nchange. Annex III Article 2.32, for instance, mandated labour law\nreform, including limitations on outsourcing and changes to minimum wage\nprovisions.<\/p>\n
Article 2.26 mandated resolution of all Special 301 Report issues,\nfrom local pharmaceutical manufacturing to extending copyright terms\nfrom 50 to 70 years. Rimawan Pradiptyo from Universitas Gadjah Mada\ncharacterised the ART structure as asymmetrical with the greatest\nbenefits flowing to the US.<\/p>\n
The Structure of Power Behind the Numbers<\/p>\n
The ratio of 214 to 9 reflected an asymmetrical distribution of\ncommitment burdens with consequences exceeding the content of individual\nprovisions. Three Nobel Prize frameworks in Economics helped explain the\nconsequences of this distribution.<\/p>\n
Thomas Schelling demonstrated that binding oneself irreversibly\nstrengthened bargaining position, but only if the opposing party was\nsimilarly bound. Through 214 \u201cshall\u201d provisions, Indonesia had chosen a\npath of deep commitment. The US, through language such as \u201cshall work\u2026\nto consider\u201d and \u201cmay take into account,\u201d retained room to adjust\ndirection whenever necessary.<\/p>\n
Oliver Hart and Bengt Holmstr\u00f6m added that in any agreement, the\nparty holding decision-making rights in unwritten situations would\nbenefit from every contingency. Article 7.3(1) allowed both parties to\nimpose additional tariffs whenever deemed necessary. Article 7.4\npermitted termination with 30 days\u2019 notice. Both were written\nsymmetrically, yet held different value for the party possessing many\nalternative instruments.<\/p>\n
Leonid Hurwicz (2007), through the concept of \u201cincentive\ncompatibility,\u201d stated that agreements would function well if each\nparty, acting according to its interests, still produced common\noutcomes. When one party possessed instruments outside the agreement,\nincentives to comply with the agreement diminished. Did this condition\napply? Evidence emerged within days.<\/p>\n
A Stack of Instruments<\/p>\n
One day after the ART was signed on 19 February 2026, the US Supreme\nCourt in Learning Resources Inc.\u00a0v. Trump (6-3) ruled that the\nInternational Emergency Economic Powers Act did not grant the President\ntariff authority, stripping the legal basis for the 32 per cent tariff\nthat served as the primary negotiation leverage.<\/p>\n
The USTR stated that all negotiated agreements remained valid. The\nART ultimately established Indonesia\u2019s obligation basis, whilst the\npromised tariff protections rested on changed legal ground.<\/p>\n
President Trump immediately implemented a 10 per cent tariff under\nSection 122, with planned increases to 15 per cent confirmed by Treasury\nSecretary Bessent. Section 122 tariffs were temporary for 150 days and\napplied to all countries without concessions. The USTR announced a new\nSection 301 investigation.<\/p>\n
Five days after signing, on 24 February, the US Department of\nCommerce announced preliminary countervailing duty rates of 85.99 to\n143.30 per cent against Indonesian solar panels, separate from the ART.\nSteel and aluminium tariffs under Section 232 also remained in effect.\nSection 301, Section 122, Section 232, and AD\/CVD now operated\nsimultaneously outside the ART framework.<\/p>\n
What Could Be Done?<\/p>\n
The ART had been signed but not yet entered into force. Article 7.5\nrequired ratification and Article 7.4 allowed termination with 30 days\u2019\nnotice. The conditions underlying negotiation\u2014the threat of a 32 per\ncent tariff based on IEEPA\u2014had changed fundamentally. The House of\nRepresentatives\u2019 ratification process represented an opportunity to\nreview the entire ART content before its obligations took effect.<\/p>\n
First, recalculate the benefits within the ART in the context of\nSection 122 applying 10 to 15 per cent to all countries without\nconcessions. Second, map all trade exposure in an integrated manner\ngiven the convergence of multiple unilateral trade mechanisms operating\nsimultaneously.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/us-indonesia-trade-agreement-disproportionate-pressure-on-indonesia-1773294908", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }