US-Indonesia TKDN Relaxation: Trade Strategy or Threat to Domestic Industry?
Jakarta – The Deputy Minister of Investment and Downstream Industries, and Deputy Head of the Coordinating Board for Investment (BKPM), Todotua Pasaribu, recently made a statement regarding the relaxation of the Domestic Content Requirement (TKDN) in the trade agreement between Indonesia and the United States. This statement has sparked debate among industry players, economists, and the general public, given that the TKDN is an important instrument in protecting and developing domestic industries.
According to Pasaribu, the relaxation of the TKDN with the US is part of a strategy to remove non-tariff barriers for US products entering Indonesia. He assured that this measure would not have a negative impact on the investment climate in Indonesia, arguing that the trade value between the two countries is already clearly measurable.
“I don’t think there will be any impact on the investment climate,” he said at the BKPM on Tuesday (24/2/2026). He added that the easing of TKDN requirements is part of a measured strategy and does not mean that Indonesia will be “completely drained” by US products.
Pasaribu’s statement comes amid concerns about the potential negative impact of the TKDN relaxation on local industries. The TKDN has long served as a form of protection for domestic products, encouraging the use of local raw materials and creating jobs within the country. With the relaxation of TKDN requirements, there are concerns that imported products, especially from the US, will increasingly flood the Indonesian market and threaten the sustainability of local industries.
Government Explanation and Emerging Contradictions
In response to these concerns, the Coordinating Ministry for Economic Affairs (Kemenko Perekonomian) explained that the TKDN policy remains in effect and is being implemented, especially in the context of government procurement. The Spokesperson for the Kemenko Perekonomian, Haryo Limanseto, affirmed that the TKDN provisions relate to projects or government spending, not all goods circulating in the market.
“This is being implemented as an effort to promote the use of Indonesian-made products,” said Haryo on the ekon.go.id website on Sunday, February 22, 2026. He added that goods sold commercially in the national market or directly to consumers are generally not subject to TKDN requirements.
“Therefore, these provisions do not change the mechanism of competition for goods in the retail market or industry as a whole and do not necessarily create unfair conditions for domestic businesses,” he said.
However, this explanation raises questions and contradictions. If the relaxation of the TKDN only applies to goods sold commercially in the market, why did the Deputy Minister of Investment and Downstream Industries state that this is part of a strategy to remove non-tariff barriers for the US? Shouldn’t the removal of non-tariff barriers apply to all types of goods, including those related to government procurement?
Furthermore, the statement that the relaxation of the TKDN will not have a significant impact on the investment climate is also questionable. Investment is not only measured by trade value but also by the social and economic impact it generates. If the relaxation of the TKDN causes local industries to suffer and jobs are lost, this will undoubtedly have a negative impact on the overall investment climate.
Potential Impact of TKDN Relaxation: A Deeper Analysis
To understand the potential impact of the TKDN relaxation, a deeper analysis of various related aspects is needed:
Impact on Local Industries: Local industries, especially those that rely on local raw materials, will be the most affected by the TKDN relaxation. Cheaper and higher-quality (or claimed to be higher-quality) imported products will increasingly flood the market, making it difficult for local industries to compete. This can lead to decreased production, reduced employment, and even business closures. Sectors such as textiles, footwear, food and beverages, and automotive components are some examples of industries that are vulnerable to the negative impact of the TKDN relaxation.
Impact on Employment: Decreased production and business closures in local industries will have a direct impact on employment. Thousands, even millions, of workers in the industrial sector may lose their jobs as a result of the TKDN relaxation. This will increase unemployment and worsen the socio-economic conditions of the population.
Impact on the Trade Balance: The TKDN relaxation can worsen Indonesia’s trade balance. With more imported products entering Indonesia, the trade deficit will widen. This can put pressure on the rupiah exchange rate and overall economic stability.
Impact on Investment: Although the Deputy Minister of Investment and Downstream Industries claims that the TKDN relaxation will not have a negative impact on investment, this needs to be questioned. Sustainable and quality investment should benefit all parties, including local industries and the community. If the TKDN relaxation harms local industries and creates uncertainty, this can hinder long-term and sustainable investment. Foreign investors who genuinely want to contribute to Indonesia’s economic growth should support policies that favour local industries and create added value within the country.
Impact on Economic Independence: The TKDN policy is one of the efforts to achieve Indonesia’s economic independence. By encouraging the use of local products and raw materials, Indonesia can reduce its dependence on imports and increase the competitiveness of domestic industries. The relaxation of the TKDN can hinder this effort and make Indonesia more dependent on imported products.
The Need for a Comprehensive and Transparent Study
Given the significant potential negative impacts of the TKDN relaxation, the government needs to conduct a comprehensive study.