President Donald Trump's recent decision to impose high tariffs on various countries has elicited significant concern among economists, business leaders, and international partners. The tariffs, which include a minimum 10 percent levy on all imports and higher rates for specific nations, have been implemented with the stated aim of addressing trade imbalances and protecting domestic industries.

Economists warn that these tariffs could lead to increased consumer prices, as businesses may pass on the higher costs of imported goods to consumers. This scenario could contribute to rising inflation and a slowdown in economic growth. Carl Weinberg of High Frequency Economics forecasts a sharp contraction of the U.S. economy by 4.5 percent in the second quarter of 2025, with continued contraction expected in the latter half of the year. Michael Feroli of J.P. Morgan anticipates a recession beginning in June, while Alec Phillips of Goldman Sachs raises the 12-month recession probability to 45 percent slashing the 2025 GDP growth forecast to 0.5 percent.
 
Jamie Dimon, CEO of JPMorgan Chase, has expressed concern that the tariffs could exacerbate inflation and hinder economic growth. He emphasized the urgency of resolving trade uncertainties swiftly to avoid long-term negative impacts on consumer confidence, investments, and corporate profits.

Global trading partners are strategizing on how to mitigate the impacts of the escalating trade war. The European Union has warned of potential retaliatory measures and is considering tariffs on US tech products. China has responded with mirrored tariffs and decried the US actions as economic bullying. Other nations, including South Korea, Pakistan, Malaysia, and Indonesia, are seeking diplomatic and strategic responses to the US tariffs.
 
The imposition of these tariffs is a contentious move with far-reaching implications. While the administration asserts that the tariffs are intended to protect U.S. industries and rectify trade imbalances, many experts fear they may lead to increased inflation, economic slowdown, and strained international relations.

The situation remains dynamic, and the full impact of these tariffs will unfold in the coming months. However, it is anticipated that there will be massive trade and investment diversions and risk aversion as affected countries -- directly or indirectly -- will begin to adjust and adapt to this unprecedented development. Hence, the global trade and investment landscape could shift in some notable ways. The following offers an overview of three anticipated impacts and possible global responses.

1. Trade Diversion
As high tariffs are imposed on imports from specific countries (e.g., China or Mexico), companies may start sourcing goods from third-party countries that are not affected by the tariffs. This could lead to (a) increased trade flows through Southeast Asia (Vietnam, Indonesia, Thailand), and India, and (b) a reconfiguration of supply chains, especially in the electronics, textiles, and machinery sectors.

2. Global Trade Slowdown
Tariffs tend to create higher costs for businesses and consumers. There will be reduced trade volumes, especially in intermediate goods that cross borders multiple times during production. But in the short term, the growth of global trade will begin to slow as businesses wait for policy clarity. This is particularly concerning at a time when global trade is already under strain from geopolitical tensions and slowing global demand.

3. Investment Uncertainty and Risk Aversion
Unpredictable tariff hikes increase policy uncertainty, which can cause (a) delayed or reduced foreign direct investment (FDI)—especially in sectors like manufacturing, where long-term planning is critical; (b) shift in FDI toward more politically “aligned” or neutral countries; and (c) acceleration of friend-shoring and near-shoring trends (e.g., U.S. companies relocating operations closer to home or to politically friendly countries).

Preliminary shifts could start almost immediately as companies anticipate further policy development in Washington D.C. Many businesses will now hedge their risks by diversifying sourcing and production, and at the same time exploring alternative investment destinations like Vietnam, India, and even Latin America. However, large-scale shifts may take time—6 to 18 months or more—due to regulatory, logistical, and financial considerations.

In view of the above, ASEAN nations, India, and Latin America could proactively position themselves as stable trade and investment destinations. Countries heavily reliant on exports to the U.S. or China might diversify their markets to reduce vulnerability. In such a context, strengthening regional trade agreements (like RCEP, CPTPP) becomes even more strategic.

Focusing on Indonesia, Jakarta may begin looking at possible scenarios. The followings discuss six specific sectors of Indonesia’s export interest: textile and garment, footwear, electronic, auto parts, palm oil, furniture, and how each might be affected by a renewed wave of U.S. tariffs and broader global trade shifts, particularly if the Trump administration continues with aggressive trade policies:

1. Textile & Garment
Impact:
•    As tariffs target China (as before), buyers may shift sourcing to Southeast Asia, especially Vietnam, Bangladesh, and Indonesia.
•    Indonesia stands to benefit indirectly as brands look for "China+1" strategies to diversify supply chains.
Risks:
•    Still faces fierce competition from lower-cost producers like Bangladesh.
•    Potential for rising protectionism in the U.S. or EU around labor/environmental standards.
Opportunities:
•    Increase capacity to fulfill redirected orders.
•    Leverage preferential trade access through bilateral FTAs, ASEAN frameworks including the RCEP, and long-waited IEU-CEPA.

2. Footwear
Impact:
•    Like garments, Indonesia could absorb some U.S. orders shifting away from China and countries closely associated with China.
•    U.S. buyers may accelerate friend-shoring to ASEAN and India.
Risks:
•    Cost competitiveness must improve to compete with Vietnam, which has more FTA coverage (e.g., CPTPP, EVFTA).
•    Input supply chains (e.g., rubber, textiles) still partially dependent on China.
Opportunities:
•    Strengthen backward linkages domestically.
•    Attract foreign footwear brands to relocate or expand production in Indonesia.

3. Electronics & Components
Impact:
•    Potential uptick in investment interest for assembling consumer electronics or components in Indonesia.
•    However, Vietnam and Malaysia are currently ahead in ecosystem development.
Risks:
•    Complex global supply chains mean even small trade frictions can disrupt operations.
•    Still reliant on China and others for critical inputs.
Opportunities:
•    Target niche areas: LED technology, small components, smart appliances.
•    Incentivize global brands through industrial park development (e.g., Batang, Kendal).

4. Automotive Parts
Impact:
•    U.S. tariffs on Chinese auto parts could lead to diversion of procurement to Indonesia and Thailand.
•    Japan and Korean auto brands in Indonesia could benefit if regional sourcing increases.
Risks:
•    Not yet a major global auto parts hub; might lose out to Thailand or India.
•    Tariff escalation could affect component pricing even in supply chains Indonesia depends on.
Opportunities:
•    Align with EV supply chain trends; leverage nickel reserves for battery-related components.
•    Deepen partnerships with Japanese and Korean automakers for regional exports.

5. Palm Oil
Impact:
•    Less directly affected by Trump tariffs since most palm oil exports go to India, China, EU.
•    But may be caught in environmental or deforestation-related trade restrictions.
Risks:
•    Potential backlash from ESG-oriented markets (U.S. included).
•    Substitution by soy or sunflower oil in some countries if trade tensions shift consumer choices.
Opportunities:
•    Push for sustainable certification, such as ISPO and RSPO, to preserve access.
•    Explore non-traditional markets or value-added derivatives (cosmetics, biofuel).

6. Furniture
Impact:
•    Major beneficiary if U.S. tariffs hit Chinese furniture again (as in the past).
•    Indonesia already saw increased orders during past trade disputes.
Risks:
•    Labor cost inflation.
•    Bottlenecks in timber supply chain or regulatory compliance.
Opportunities:
•    Promote Jepara and other furniture hubs as ready alternatives.
•    Strengthen branding of Indonesian furniture as sustainable and handcrafted.

To sum up, Indonesia can employ combined strategies to adapt and adjust to recent developments in international trade: a) strengthen local manufacturing ecosystems to attract investment fleeing China, Canada, and Mexico; b) utilize existing bilateral and regional FTAs while finalizing CEPA with the EU and preparing a bilateral trade negotiation with the US; c) promote sectors with strong sustainability credentials to align with shifting ESG standards; and d) deregulate and reform the economy to make doing business cheaper, easier and faster while investing in trade infrastructure (logistics, ports, special economic zones) to reduce export costs.

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Iman Pambagyo is the Trade Ministry’s Director General of International Trade Negotiations (2012-2014, 2016-2020) and Indonesia’s Ambassador to the WTO (2014-2015).

The views expressed in this article are those of the author.