Trump's Trade Policies to Test Indonesia's Resilience in 2025

JAKARTA, investortrust.id – Indonesia’s economic fundamentals remain promising for 2025, but the trade policies of US president-elect Donald Trump are expected to disrupt the economy in the first half of the year, according to DBS Bank Chief Investment Officer Hou Wey Fook.

Speaking at an online event, DBS CIO Insights 1Q25: Game Changers, on Monday, January 13, 2025, Hou warned that Indonesia, like other emerging economies, faces structural challenges that require strong policy support. "The long-term economic outlook is positive, but structural reinforcement is crucial, especially in Indonesia," he noted.

Hou identified three key obstacles for Indonesia in early 2025: Trump’s trade policies, a robust US dollar, and persistently high interest rates.

DBS Bank Senior Investment Strategist Joanne Goh echoed Hou’s concerns, predicting that Trump’s policies would create significant headwinds for Indonesia during the first half of the year. "We anticipate a shock for Indonesia, particularly in the early months of Trump’s second term," she said.

Despite early challenges, Goh offered a more optimistic view for the latter half of 2025, projecting that Indonesia will pivot by deepening its economic ties with China. Indonesia is expected to leverage the China Plus One strategy, becoming a vital partner for China in supplying key minerals and metals critical to the electric vehicle (EV) and electrification industries.

"Indonesia’s role as a major supplier of raw materials positions it as an indispensable trade partner for China," Goh said, adding that these developments could counterbalance the effects of US trade policy.

Goh also emphasized Indonesia’s demographic advantage and domestic consumption potential, supported by President Prabowo Subianto’s initiatives. "Indonesia’s economic resilience is not just tied to exchange rates or bond markets. Domestic consumption, fueled by favorable demographics and supportive government programs, will play a crucial role," she explained.

DBS Senior Investment Strategist Darryl Ho noted that while foreign capital outflows have weighed on Indonesian government securities, the sentiment appears to be reactionary rather than reflective of underlying fundamentals.

"The knee-jerk reaction has been somewhat overblown. Indonesia maintains a solid investment-grade rating," Ho said, adding that the country’s financial market remains attractive for investors considering rupiah-denominated assets.

However, Ho cautioned against expecting a rapid inflow of foreign capital into emerging markets, including Indonesia, in the near term. "Emerging markets will face hurdles and should adopt a wait-and-see approach for now," he concluded.

While the first half of 2025 is expected to test Indonesia’s resilience, experts agree that the second half could see a rebound, driven by strategic partnerships with China and robust domestic consumption. The nation’s ability to navigate Trump’s trade policies and capitalize on its strategic resources will be critical in shaping its economic trajectory for the year.