The U.S.-Indonesia trade deal, hailed in July as a breakthrough for regional economic cooperation, is now “at risk of collapse,” according to a senior U.S. official quoted on Tuesday. The official said Jakarta has “backtracked” on key pledges, jeopardising months of negotiations designed to strengthen supply-chain ties and market access between the two countries.
The dispute centres on Indonesia’s reported request to make parts of the agreement non-binding, including commitments on removing non-tariff barriers and opening its digital-trade sector. U.S. negotiators say these changes would undermine the accord’s structure, which was presented to American businesses as a major export opportunity.
“They’re reneging on what we agreed to in July,” the U.S. official told Reuters, describing the current position as a “serious reversal” of earlier assurances. The official added that Washington remains open to dialogue but has not ruled out walking away from the deal.
Jakarta has rejected suggestions that the talks have broken down. A spokesperson for Indonesia’s economic ministry said discussions are continuing and described the disagreements as part of “language harmonisation,” not a sign of retreat. “We are committed to achieving a balanced outcome that respects both nations’ interests,” the spokesperson said in a statement carried by local media.
The trade agreement — signed in principle earlier this year — would eliminate tariffs on more than 99 per cent of U.S. goods entering Indonesia and reduce U.S. duties on Indonesian exports from 32 per cent to 19 per cent. It also contained provisions targeting long-standing non-tariff barriers, as well as rules on data protection, localisation, and fair competition for digital-trade providers.
For Washington, the deal represented a cornerstone of its strategy to deepen economic engagement in Southeast Asia and counterbalance China’s growing influence in the region. U.S. officials had highlighted Indonesia’s vast market, natural resources, and strategic location as key reasons to accelerate the agreement.
Analysts note that Indonesia’s domestic sensitivities may be driving the current hesitation. The country’s nationalist economic policies, including local-content rules and export restrictions on critical minerals, have broad political support. Implementing the U.S.-backed terms could prove politically difficult ahead of next year’s parliamentary session.
Industry groups on both sides are now watching closely. American exporters of machinery, agricultural goods, and technology components have been preparing for reduced tariffs and simpler regulatory clearance. A prolonged impasse could delay investment decisions and affect supply-chain diversification plans that hinge on a stable trade framework.
Negotiations are continuing this week, with neither side confirming whether senior-level talks will resume before year-end. Observers suggest that even a partial agreement — preserving tariff cuts while deferring digital-trade terms — could still hold symbolic value, though it would represent a diminished version of the original accord.
