Hanoi, Vietnam — A new trade agreement Indonesia and the United States have renewed their economic ties, bringing Jakarta’s resource wealth and energy future closer to Washington’s strategic needs.
Indonesia agreed to expand access for US investors in critical minerals, promote purchases of US crude and liquefied petroleum gas, support the development of a US coal export corridor, and cooperate on small modular nuclear reactors.
In return, the US reduced the threatened 32% tariffs on Indonesian goods to 19% and provided broader access to the US market, including a zero-tariff entry policy for key products such as palm oil, coffee, cocoa, spices and rubber.
Although the US Supreme Court ruled against President Donald Trump’s tariffs could impact how it is implemented. This agreement is in line with long-term US efforts Secure critical mineral supply chainsstrengthen its oil and gas exports and reduce dependence on china.
Meanwhile, other export-reliant Southeast Asian economies negotiating with the United States, including Vietnam, are closely watching the Indonesia-US trade deal for clues about tariff levels and concessions Washington may demand across the region.
Indonesia, the World’s largest nickel producerIt has vast mineral reserves needed for electric vehicles and clean energy systems. Its caught in the middle The US and China, a major source of foreign investment and market for Indonesian coal and nickel, have conflicting objectives, analysts say.
China is focusing on electrification Renewable energy and dominance of battery supply chains, while the US is combining its push for mineral access with more fossil fuel exports.
Haryo Limansato of Indonesia’s Coordinating Ministry of Economic Affairs said the deal’s energy provisions “balance foreign trade and meet domestic energy needs.”
“Indonesia’s leadership is trying to walk a fine line between the West and China,” said Adhiguna, son of the Jakarta-based Energy Shift Institute. He said Chinese influence is “inevitable” as it is Indonesia’s largest trading partner.
Indonesia has promised to promote US investment in its minerals industry, from exploration and mining to refining, transportation and exports. In some cases, US investors will receive “no less favorable” treatment than domestic companies.
ban on export of critical minerals The agreement says the US will be given waivers to accelerate the development of Indonesia’s rare earth and critical minerals sector with American partners, promising “greater certainty” for companies involved in extraction to help boost production.
Major policy changes Indonesia’s mining sector has undergone changes over the past six months and new trade agreement restrictions on existing foreign-owned entities in Indonesia will curb additional output from processing plants. Foreign businesses must comply with the same tax, environmental, labor and quota regulations as other companies.
Indonesia’s significant mineral processing sector is currently dominated by China, with companies operating or financing several nickel smelters and industrial parks.
“Indonesia is absolutely central to this competition because it combines resource endowment with political ambition,” said Kevin Zongze Li of the Center for China Analysis within the Asia Society Policy Institute, a New York-based think tank.
Competition over critical minerals is heating up and the agreement “opens the door for US companies to level a playing field where Chinese industries have established a first-mover advantage”, he said.
Indonesia has agreed to cut red tape so its companies can more easily buy American energy products.
It plans to buy $15 billion worth of US energy commodities over an unspecified period, mainly consisting of fossil fuels such as liquefied petroleum gas, crude oil and gasoline.
Trump’s efforts to persuade Asian countries will buy more US LNG It has gained momentum during trade talks energy purchase Trade is emerging as a way to bridge the gap. It’s unclear whether oil trade turmoil caused by the war with Iran could affect that effort.
Indonesia, one of World’s top coal exportersThe agreement says there will also be investment in developing an export corridor from the US West Coast to help make US coal more competitive in global markets.
Indonesia also pledged to work with the US and Japan to deploy small modular nuclear reactors, starting with a potential project in West Kalimantan.
The deal reflects changed US energy priorities under the Trump administration, away from cooperation on reducing Indonesia Climate change -Reason for emission.
In 2022, Indonesia Joins the Just Energy Transition PartnershipA multi-billion dollar deal where the US and other wealthy countries promised to reduce coal use and support the expansion of clean energy. the program was flailing even before Trump retreated This from last year.
Despite the US withdrawal, Indonesian officials said the $21.4 billion partnership would continue. As of January, at least $3.4 billion, about 15% of the funds, had been received, according to Airlangga Hartarto, Indonesia’s economic affairs minister.
Adhiguna said the biggest impact of the agreement could be political, with Jakarta emulating the US emphasis on fossil fuel use.
“There is a danger that Indonesia’s political leadership will fall into the same hole again,” Adhiguna said.
This will mean that there will still be slow progress in areas such as solar energy.
Over the past five years, tropical, sunny Indonesia has installed less than 1 gigawatt of solar power – roughly compared to 2 GW in Vietnam and approximately 60 GW in India. The International Energy Agency found that fossil fuels such as coal, oil and natural gas made up about 78% of Indonesia’s energy mix in 2023.
Dinita Setyawati with United Kingdom-registered energy think tank Amber said Indonesia should prioritize building 100 GW of solar and storage capacity and expanding the interconnection grid to enable renewable energy sharing.
The future of the deal is in danger due to the recent decision of the US Supreme Court against Trump comprehensive global tariffRight after the agreement was made – raise doubts On the sustainability of his business strategy. The agreement requires ratification by the Parliament of Indonesia before it can take effect.
This adds another “layer of uncertainty,” said Meha Sitepu of The Asia Group, a Washington-based strategic advisory firm.
Some provisions of the agreement are being criticized as weakening the halal certification requirements of Indonesia, Southeast Asia’s most populous Muslim country of about 288 million.
“Parliamentary approval could be an uphill battle and additional uncertainty from the US could further complicate things,” Sitepu said.
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Delgado reported from Bangkok, Thailand. Associated Press writers edna tarigan Contributed to this report in Jakarta.
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