In a stunning month for global trade, US President Donald Trump has announced a new trade deal with Indonesia, coinciding with the European Union’s significant step towards a free trade agreement with the Southeast Asian nation.
Trump’s New Deal with Indonesia
On 15 July 2024, Trump declared the trade deal on Truth Social, stating it was a “great deal for everybody” while emphasising his direct negotiations with Indonesia’s President Prabowo Subianto. This agreement comes as the US seeks to bolster trade relations amid escalating tensions with the EU, which is preparing to retaliate against US tariffs.
With total trade nearing US$40 billion, Indonesia is not among the top 15 trading partners of the US, but trade has been on an upward trajectory, with US imports from Indonesia rising 4.8 per cent last year. Key exports from the US include palm oil, electronics, and footwear—meaning this deal could shape future trade flows significantly.
EU’s Strategic Moves
Meanwhile, on 13 July 2024, EU chief Ursula von der Leyen, alongside President Prabowo, hailed the long-awaited political agreement to conclude a free trade deal with Indonesia. The partnership, which has been in negotiation since 2016, is viewed as a “decisive milestone” towards enhancing trade and investment.
Von der Leyen expressed optimism about the opportunities this new agreement might bring, targeting key industries such as agriculture and automotive. As she aptly put it, “There’s a lot of untapped potential in our trade relationship.”
Impacts of Potential Tariffs
- Trump has threatened a 30 per cent tariff on imports from the EU by 1 August 2024 if negotiations do not yield results, which has caused significant concern across EU member states.
- A potential €72 billion worth of US goods could face tariffs if the EU’s retaliatory measures are enacted.
- This escalation in trade tensions reflects a strategic pivot by both the US and the EU to strengthen ties with Indo-Pacific nations.
The stakes are high for both the US and EU as they navigate this evolving trade landscape. Analysts suggest that while Trump’s aggressive tariff strategy may aim to renegotiate terms favourably for the US, it has inadvertently spurred the EU and Indonesia closer together—a classic case of unintended consequences in international relations.