The Centre for Strategic and International Studies (CSIS) has highlighted potential risks underlying the implementation of a zero percent tariff for textile products within the Indonesia–United States trade agreement. Riandy Laksono, a researcher from the CSIS Economics Department, warns that while the policy appears beneficial, it could trigger significant disruptions in the national textile industry's supply chain. Under the Reciprocal Trade Agreement (RTA) scheme, the tariff-free quota for Indonesian textile products is determined by the volume of raw materials sourced from the United States. Essentially, the larger the portion of U.S. raw materials used in production, the greater the opportunity for Indonesian manufacturers to access the zero percent tariff facility.
The core of the issue lies in the current structure of Indonesia’s textile raw material imports, which remain heavily dependent on China. Data presented by Riandy shows that cotton imports from the U.S. currently account for only about 8.6 percent, while imports from China reach 29.4 percent. The disparity is even more pronounced in the man-made fiber category, where the U.S. supplies a mere 0.3 percent compared to China's dominant 65.1 percent share. According to Riandy, if industry players are incentivized or forced to pivot toward U.S. raw materials to meet the zero-tariff quota requirements, the potential for supply chain instability is immense. Such a sudden shift in supplier structures could impact production costs, supply stability, and the overall price competitiveness of finished goods.
Pricing presents a further challenge that could undermine the agreement's intended benefits. Riandy pointed out that U.S. cotton fabric is priced at approximately US$19.9 per kilogram, significantly higher than similar products from China which cost only around US$6.25 per kilogram. This substantial price gap risks eroding, or even completely negating, the profit margins gained from the zero percent export tariff exemption. Previously, Coordinating Minister for Economic Affairs Airlangga Hartarto stated that the U.S. had agreed to the tariff exemption for Indonesian textiles within certain quota limits, noting that the Memorandum of Understanding (MoU) includes a commitment to purchase U.S. cotton as part of the facility. Currently, Indonesia’s textile exports to the U.S. are valued at approximately US$4 billion.
Overall, the Indonesia–U.S. trade agreement sets a standard tariff of 19 percent for Indonesian exports to the United States. However, a total of 1,819 agricultural and industrial products receive a zero percent tariff facility without special conditions, including crude palm oil, coffee, cocoa, spices, rubber, and high-tech components like semiconductors and aircraft parts. The CSIS findings suggest that the zero-tariff policy in the textile sector is not necessarily a win for the industry without considering the internal cost structures and raw material dependencies of domestic manufacturers. Without a mature adjustment strategy, this trade incentive risks creating new pressures for national textile businesses rather than providing the intended relief.
