Assessing the Indonesia–U.S. Reciprocal Trade Agreement

The President of the Republic of Indonesia, Prabowo Subianto, and the President of the United States, Donald Trump, signed a historic trade agreement in Washington, D.C., United States, on Thursday (19 February 2026). Photo: Presidential Staff Office of the Republic of Indonesia.

Over the past week, public attention has intensified around the reciprocal trade agreement between Indonesia and the United States. The development follows President Donald Trump’s announcement of unilateral tariffs last April during the “Liberation Day” which included a potential 32 percent tariff on Indonesian exports. In response, Indonesia chose to enter negotiations with the White House to mitigate these risks and safeguard its trade interests.

The Agreement on Reciprocal Trade was ultimately signed during President Prabowo Subianto’s visit to attend the first Board of Peace (BoP) meeting. The Indonesian government’s effort to ease trade tensions coincided with broader high-level diplomatic engagements, indicating that the agreement was shaped not solely by economic considerations, but also by wider political and strategic calculations within a shifting global landscape.

Another assessment is on the origin and Scope of the Draft. It appears that the draft text largely originated from the U.S. side. While Indonesia’s interests are reflected in tariff-related provisions particularly on key exports or trade in goods such as coffee, cocoa, and palm oil, the agreement extends well beyond trade in goods, touching over other sectors like trade in services, investment, digital trade, and other issues such as environment, labor rights. 

While we read on this agreement, there is a question of how we understand over the term of “Reciprocity” that used by Trump’s administration. The notion of reciprocity warrants careful scrutiny. Are the costs and benefits proportionate? Do the commitments reflect balanced obligations, or do they tilt more heavily toward one party? However, some argue especially from the government side justify the agreement beyond just mathematical-wise, as the agreement bring more of strategic weights. 

This agreement also provide risks and implications for other Indonesia’s trade partners. This agreement that perceived as granting exceptional treatment to the United States could prompt responses from other key partners. Countries with strong trade and investment ties to Indonesia may seek comparable arrangements, potentially complicating Indonesia’s broader trade diplomacy and domestic policy positioning. This will definitely trigger requests to have more favorable treatments from other Indonesia’s main trading partners. 

Moreover, given its broad scope, the agreement contains clauses that may be contentious or carry significant national policy consequences. These require further clarification, particularly regarding their long-term impact on domestic industries, regulatory autonomy, and development priorities. Many analyst strongly point out the 

Despite, the spirit of addressing non-tariff barriers, and regulatory blockages that hinder potential US investment inflow to Indonesia, might give good push for domestic deregulation, the extention to what these give consistent positive impacts to the national economy. 

The next part of this analysis will address the observations on specific clauses within the agreement. 

First is on the removal of technical barriers to trade. Indonesia is required to remove existing technical barriers to trade that are deemed to “undermine reciprocity,” and to provide non-discriminatory treatment to U.S. agricultural products. The scope and interpretation of what constitutes a “technical barrier” may require further clarification, particularly in relation to domestic standards, certification processes, and food security considerations. In many aspects of this imported goods, there should be alignment with the policy standards that Indonesia apply to all parties, to make sure the quality, safety, and also the equal treatment to trade partners. 

Second, is around the clause about local content requirements and deregulation. The commitment to relax local content requirements and related policy measures could significantly affect Indonesia’s industrial strategy and domestic economic governance. This raises an important question: to what extent is deregulation being driven by external commitments rather than domestic reform priorities? The long-term implications for industrial upgrading and value-chain development merit careful consideration.

Third, is on Article 2.7 Treatment of U.S. Services. Indonesia shall refrain from imposing measures that provide “less favorable treatment” to U.S. services. However, the term “less favorable” remains broad and potentially ambiguous. Clear parameters will be needed to determine how this obligation is assessed and implemented, especially in sectors where domestic regulation plays a strategic developmental role.

Fourth, Article 5.1.2 requires Indonesia to adopt measures to address practices deemed “unfair,” including:

• The export of goods to the United States at below-market prices;

• A significant increase in exports of such goods to the United States;

• A reduction in U.S. exports to Indonesia or to third-country markets.

The scope of these provisions raises important interpretative questions. Defining what constitutes “below-market prices” is inherently complex, particularly in sectors where pricing is influenced by subsidies, exchange rates, or global commodity cycles. Likewise, establishing direct causality between Indonesian exports and a reduction in U.S. exports either domestically or in third markets may be practically and legally challenging.

These commitments may also intersect with multilateral trade rules and Indonesia’s broader export strategy. Their implementation could have implications not only for Indonesia–U.S. trade flows but also for Indonesia’s trade relations with other major partners. As such, careful calibration and strong monitoring mechanisms will be essential to ensure that compliance does not inadvertently disrupt established trade patterns or undermine Indonesia’s long-term commercial interests.

Fifth, Article 6.1.1 on critical minerals and energy resources. The agreement provides for cooperation in the exploration, mining, refining, processing, transportation, distribution, and export of critical minerals and energy resources. Given Indonesia’s strategic position in global critical mineral supply chains particularly in nickel and other battery-related inputs, the implementation of this clause must be carefully aligned with Indonesia’s downstreaming strategy and broader energy sovereignty objectives.

This provision will inevitably influence how Indonesia structures its critical minerals partnerships with major economies. It requires careful coordination to ensure consistency with existing and future cooperation frameworks, while safeguarding Indonesia’s long-term goal of capturing higher value-added activities domestically. The key challenge will be balancing openness to strategic collaboration with the preservation of national industrial priorities and policy flexibility.

Sixth, Article 6.2 on State-Owned Enterprises (SOEs). The agreement stipulates that Indonesia shall ensure a “level playing field” between SOEs and U.S. companies, including in matters related to subsidies and domestic production support. The interpretation of what constitutes a “level playing field” will be critical, particularly given the central role SOEs play in Indonesia’s development model and in strategic sectors such as energy, infrastructure, and finance.

Any implementation of this provision must therefore be carefully calibrated to avoid undermining the developmental mandate of SOEs, while maintaining fair competition. At the same time, the principle of a level playing field should not be viewed solely in the context of foreign firms. Ensuring balanced and transparent competition between SOEs and national private enterprises is equally important to strengthen Indonesia’s overall business ecosystem and long-term competitiveness.

Additionally, Article 6.3 on textiles addresses Indonesia’s textile exports to the U.S. market. The provisions include specified export volumes and potential linkages to U.S.-sourced cotton and man-made fibers. The operational details of these commitments will be critical, as they may affect Indonesia’s domestic textile value chain, input sourcing flexibility, and overall competitiveness. Careful evaluation is needed to ensure that these arrangements do not constrain industrial upgrading or disrupt established supply networks.

Furthermore, the Supreme Court decision issued after the agreement was signed during the President’s visit to the United States may introduce legal and procedural implications for its implementation. This moment however should be seen not only as a source of uncertainty, but also as an opportunity for Indonesia to review, refine, and, where necessary, realign specific clauses to ensure that the agreement delivers balanced and mutual benefits.

The 90-day ratification process at the national level should also be utilized constructively. Parliament, industry stakeholders, and the private sector must be given adequate space to assess the agreement’s provisions in detail. Transparency, open dialogue, and inclusive consultation will be essential to ensure that Indonesia is both prepared to implement its commitments and positioned to derive meaningful economic gains from the agreement.

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This article written by Noto Suoneto, Founder of Foreign Policy Talks.