The latest trade agreement between the United States and China announced on May 12, 2025 marks a significant shift in global economic dynamics, ending years of escalating tariffs that disrupted global supply chains and triggered financial uncertainty. 

As the world's two largest economies agreed to a mutual tariff rollback over the next 90 days, economists are warning that the move carries deeper implications − especially for developing economies like Indonesia.

Syafruddin Karimi, an economist at Andalas University’s Department of Economics, said the U.S.-China deal should not be seen as the end of global trade tensions, but rather as a critical juncture for countries to reassess their economic strategies.

“If economic giants like the U.S. and China are backing away from trade wars due to their unsustainable costs − inflation, job losses, and business strain − what about smaller economies?” Karimi said in a statement on Tuesday, May 13, 2025.

“Indonesia must learn from this. Export dependence alone is not enough. We need a strong domestic market, resilient local industries, and independent policies. It’s time to stand on our own feet before another crisis forces us to change,” he cited.

The U.S.-China trade truce, which followed a high-level meeting in Geneva, involves a phased reduction of tariffs that had reached 145 percent on some Chinese goods and 125 percent on American exports. The agreement was welcomed by markets, with European indices like the STOXX 600 and Germany’s DAX rising in response to hopes of de-escalation.

Opportunities, caution for Indonesia

Karimi emphasized that while the easing of trade tensions could open new export opportunities for Indonesia − particularly in manufacturing and intermediate goods − there are risks of trade diversion. Products previously exported from the U.S. or China to third countries like Indonesia could now revert to original suppliers as tariffs drop.

“This is both an opportunity and a warning. Indonesia may lose the temporary trade advantages it gained during the tariff war. Enhancing domestic competitiveness and negotiating favorable bilateral deals will be key to maintaining trade momentum,” he said.

Export-led growth

More broadly, the trade war and its costly aftermath have raised concerns about the long-term viability of export-led growth as a development model. Karimi sees the U.S.-China standoff as a stark reminder that over-reliance on global demand can make economies vulnerable to geopolitical shocks.

“The Trump vs. Xi trade war is a loud wake-up call,” Karimi said. “Even economic powerhouses stumbled in the face of aggressive protectionism. Emerging economies must reconsider their strategies. Economic resilience cannot rely solely on global markets − we need innovation, domestic diversification, and stronger internal demand,” he said.

Strategic response

To navigate the shifting global trade landscape, Karimi calls for Indonesia to adopt a strategy of “active neutrality” − engaging both the U.S. and China economically without becoming overly dependent on either. He also advocates for strengthening Indonesia’s role in regional forums such as ASEAN, promoting rules-based trade through institutions like the WTO, and investing in structural reforms to bolster the domestic economy.

“The U.S.-China agreement is a starting point, not an endpoint,” he said. “Indonesia must act with vision and purpose, not as a passive observer but as a strategic player in shaping the future of global trade.”

As the world recalibrates in the wake of this landmark deal, economists and policymakers alike are calling for bold, forward-looking action to ensure that Indonesia not only survives − but thrives − in the new global trade era.