Indonesia's economic future is poised at a crucial crossroads amidst dynamic shift of global power, with waning influence of the Unites States and China’s rising as a dominant economic force. 

Addressing the National Congress of the Indonesian Employers Association (Apindo) on Monday, August 4, 2025, economist Wijayanto Samirin of Paramadina University warned that Indonesia must carefully navigate this changing landscape, as it presents both significant threats and unique opportunities for the nation’s economy.

“The ongoing geopolitical tug-of-war between the U.S. and China has far-reaching implications for Indonesia, which finds itself caught between two competing economic giants,” Wijayanto said.

As the U.S. seeks to exert more pressure on China, he sees an opportunity for Indonesia to benefit from this trade diversion.

“With lower tariffs for Indonesian products compared to China and India, Indonesia stands to capture market share in key markets, such as the U.S., that are shifting away from China and India due to trade restrictions,” Wijayanto cited.

However, this shifting global order is not without its risks as the rise of China presents challenges, especially as Indonesia deepens its economic ties with the superpower.

“While China’s growing influence offers investment opportunities, Indonesia must be cautious not to become overly dependent on one economic partner. This delicate balance is critical for maintaining Indonesia’s sovereignty in a rapidly changing geopolitical environment,” Wijayanto said.

In the context of global dynamics, he emphasized that Indonesia’s economic strategy must be agile and multifaceted. While the opportunities stemming from the shifting U.S.-China relations are clear, Indonesia must also address its internal challenges, such as declining consumer purchasing power and stagnating export growth, to truly capitalize on its positioning in the global market.

As he put it, “The reality is that Indonesia’s economic future is closely tied to the unfolding global changes. Our ability to manage relationships with both the U.S. and China, while boosting domestic competitiveness and diversification, will determine our success in navigating this new era.”

In addition to geopolitical factors, Wijayanto also highlighted critical domestic challenges that could undermine Indonesia’s ability to fully capitalize on the opportunities arising from global shifts. Chief among these challenges is the significant decline in domestic purchasing power. As the nation faces a 19.7 percent drop in VAT and luxury goods tax collections in the first half of 2025, the repercussions of weakening consumer demand are already being felt across various sectors.

He noted that this decline is part of a broader trend of stagnating domestic consumption, which is further compounded by rising unemployment rates, deflationary pressures, and a drop in public savings. Moreover, Indonesia’s export performance has been lackluster, with stagnating growth in the face of growing competition from countries like Vietnam, which has significantly improved its export diversification and manufacturing capabilities.

Wijayanto stressed that the key to Indonesia’s future success lies in its ability to diversify its product offerings and reduce its reliance on raw commodities.

“Global competitiveness of a country is increasingly measured by its ability to produce sophisticated, high-tech products. Indonesia, unfortunately, has seen a decline in its ranking for producing complex products, dropping from 49th in 2000 to 72nd in 2023, while Vietnam has climbed from 86th to 48th in the same period,” he said.

Adding to the domestic woes, Wijayanto pointed to the pervasive issue of corruption, which continues to plague Indonesia’s economic environment. While strides have been made in anti-corruption efforts, he argued that the current approach may be overly punitive and could drive away investors and entrepreneurs.

“A more balanced and effective approach to combating corruption is needed − one that focuses on prevention and ensures a fair and predictable business environment,” he suggested.

He noted further that the underground economy in Indonesia is rampant, contributing 23.8 percent to the country’s GDP, which translates to a significant loss in potential tax revenue and undermines the legitimacy of the formal economy.

To overcome these hurdles, he outlined several key strategies. First, Indonesia must take full advantage of the current global trade reconfigurations by negotiating more favorable trade terms with key markets like the U.S. and China.

“Ensuring that as many Indonesian products as possible fall below the 19 percent tariff threshold will help the country compete more effectively in the international arena,” he said.

Wijayanto also emphasized the need for Indonesia to focus on market diversification by accelerating its efforts to open new trade routes, especially through initiatives like the IEU-CEPA (Indonesia-European Union Comprehensive Economic Partnership Agreement) and expanding ties with BRICS nations.

Furthermore, he highlighted the need for legal and regulatory reforms.

“Strengthening the legal framework to prevent corruption, simplifying regulations to foster a more business-friendly environment, and ensuring that economic policies are grounded in realistic projections will be essential for maintaining investor confidence and domestic economic stability,” he noted.

He also stressed the importance of boosting domestic competitiveness through diversification and investment in industries beyond traditional commodities.

In conclusion, Samirin urged Indonesia to take decisive action in the face of both global and domestic challenges. He emphasized that while the opportunities presented by the shifting U.S.-China dynamics are significant, they must be balanced with a concerted effort to address domestic economic issues such as purchasing power, corruption, and stagnating exports.