Indonesia Braces for Impact of Trump’s Potential Trade War

Jakarta. Donald Trump’s re-election as US president and his renewed focus on protectionist policies could stifle global economic growth, warns the Institute for Development of Economics and Finance (Indef).

Trump’s move to raise tariffs on Chinese imports is expected to escalate trade tensions, disrupt global supply chains, and create uncertainty in international markets, according to Indef Deputy Director Eko Listiyanto.

“Protectionism tends to lower global trade volumes. As global economic activity slows, key indicators such as exchange rates and business confidence will likely take a hit,” Eko said during a virtual discussion hosted by Tumbuh Makna in Jakarta on Friday.

While direct effects on Indonesia may be limited, as the country is not yet a major strategic trading partner for the US, Eko cautioned the risk of Chinese products, being shut out of the American market, flooding Southeast Asia. “This could pressure domestic industries by increasing the influx of Chinese imports,” he said, underscoring the need to increase  Indonesia’s competitiveness.

Trump’s policies are also expected to contribute to inflationary pressures in the US, while China is likely to diversify its export markets to regions such as Southeast Asia. Despite the potential challenges, Eko remains optimistic that Indonesia can sustain growth near 5 percent, as it did during the first wave of US-China trade tensions.

One potential silver lining is the opportunity for Indonesia to attract foreign investment. Trade conflicts may prompt global investors to seek alternatives to China, with Indonesia emerging as a possible destination alongside Vietnam. “This is a major opportunity for Indonesia as a large economy. Countries like South Korea, which previously invested heavily in China, are already shifting their focus to other markets,” Eko said.

Benny Sufami, an economist and co-founder of Tumbuh Makna, emphasized the need for strategic planning amid global volatility. “Diversifying investment portfolios, such as allocating assets to fixed-income instruments or bonds, is crucial to navigating the market turbulence caused by Trump’s policies,” Benny said.

However, Benny stressed the importance of improving Indonesia’s infrastructure and competitiveness to fully capitalize on these opportunities. He also flagged risks from a stronger US dollar, which could impact Indonesia’s currency and import-dependent sectors.

Despite the uncertainties, Benny pointed to growth potential in infrastructure, digitalization, and domestic consumption. “Trump’s policies will likely shift global supply chains, creating openings for Indonesia’s manufacturing and export sectors. Stable growth prospects in infrastructure and digital transformation make this an opportune time for investors,” he concluded.

Bank Indonesia (BI) has projected that Indonesia’s economy will grow between 4.8 percent and 5.6 percent in 2025, with a similar outlook for 2026, despite challenges from geopolitical tensions and global market fluctuations. U.S. President Donald Trump’s policies, along with the potential impact of trade wars, supply chain disruptions, and rising inflationary pressures, are expected to create turbulence for the global economy, potentially slowing growth in both 2025 and 2026.

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