UI Economist Says US Trade Diversion to Indonesia Could Reach $7.11 Billion
Jakarta – Fithra Faisal Hastiadi, an economist at the University of Indonesia and chief expert at Indonesia’s Government Communications Body (Bakom RI), has projected that US trade diversion to Indonesia could reach $7.11 billion.
Hastiadi stated that this phenomenon can occur because reciprocal tariffs applied to products imported from Indonesia are lower compared to competing nations, encouraging US importers to source products from Indonesia instead.
“Economically, we benefit because those countries have much higher tariffs, such as Brazil and China, so there is potential for trade diversion. In economic terms, we gain,” Hastiadi said in Jakarta on Friday.
He noted that the significant trade diversion potential is supported by zero tariffs on 1,819 Indonesian products and expanded investment opportunities in strategic manufacturing sectors following the recent trade agreement signed between Indonesia and the United States.
“This is my calculation, not the government’s, so for the manufacturing sector, Indonesia could gain approximately $3.38 billion from trade diversion,” he explained.
Indonesia stands to capture an additional $2.22 billion in trade diversion from the textiles sector and $1 billion from agriculture.
Hastiadi also highlighted that the trade agreement could foster mutual regulatory recognition between the two countries, including mutual recognition of food safety standards and halal certification. He noted that the high standards applied by the US Food and Drug Administration (FDA) could strengthen food and drug safety oversight in Indonesia. Products already certified by the FDA would no longer require re-approval from Indonesia’s Food and Drug Authority (BPOM), and similarly, US products with halal certification would streamline their market entry.
Hastiadi emphasised that Indonesia’s strategically consistent position in maintaining neutral foreign policy provides advantages on the global economic stage. Indonesia’s participation in BRICS, which includes countries facing significantly higher tariffs from the United States, creates substantial opportunities for trade diversion.
The economist noted that Indonesia is increasingly being positioned by the United States as a primary alternative supply chain hub. Practical benefits from the bilateral cooperation are already materialising through substantial US investment commitments in semiconductor technology development and rare earth mineral processing.
“When the US invests in semiconductors, it means we can build that ecosystem. Exporting from that semiconductor ecosystem also serves our own interests,” Hastiadi added.