Trade Tensions Soar: Trump Targets Indonesia, EU Plots Massive Tariff Retaliation
In a new turn in the United States' trade policy, President Donald Trump has announced a 19 per cent tariff on imports from Indonesia under a bilateral agreement, with further trade deals expected in the coming weeks. The agreement, unveiled on Tuesday, is part of Trump’s broader push to recalibrate US trade relations and reduce the country's trade deficit.
Although Indonesia is not among the top 15 US trading partners, bilateral trade reached nearly $40 billion in 2024, reported Reuters. The deal mirrors earlier terms struck with Vietnam, involving zero tariffs on US exports to Indonesia, a flat 19 per cent tariff on Indonesian goods entering the US, and provisions to penalise transhipments via Indonesia from third countries like China.
Trump also revealed on Truth Social that Indonesia had agreed to buy $15 billion worth of US energy exports, $4.5 billion in farm goods, and 50 Boeing jets, though no timeline was specified for these purchases.
Broader Tariff Strategy Targets Multiple Countries
The new Indonesia deal arrives just ahead of an August 1 deadline, when existing tariffs on US imports are scheduled to increase unless new arrangements are reached. Trump has also warned several other trading partners, including Japan, Canada, and Brazil, about potential tariffs ranging from 20 to 50 per cent. A letter sent to Indonesia last week had threatened duties as high as 32 per cent, which appears to have been negotiated down.
Trump’s strategy includes plans to impose new levies on imported pharmaceuticals, beginning with a modest rate at month’s end, with the potential to escalate significantly over the next year. The intention, he said, is to allow manufacturers time to shift production to US soil.
According to Yale Budget Lab, average US tariff rates could climb to 20.6 per cent—up from just 2 to 3 per cent prior to Trump’s return to office in January. Even after consumption adjustments, the effective rate would still be around 19.7 per cent, the highest since 1933.
Despite criticism that the administration has fallen short of its earlier promise to secure “90 deals in 90 days,” Trump remains confident. Talks with India are reportedly progressing, with the US hoping to secure greater access to Indian markets for American firms.
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EU Prepares for Potential Trade Conflict
While Trump celebrates his latest agreement, tensions with the European Union are escalating. The European Commission is preparing retaliatory tariffs targeting $84.1 billion (€72 billion) worth of US goods, including aircraft, automobiles, and various agricultural products, should discussions with Washington fail.
Trump’s threat of a 30 per cent tariff on EU imports—also set for August 1—has prompted EU officials to draft a broad package of countermeasures. The list includes industrial goods, medical equipment, wine, beer, and a range of food items, collectively valued at over €6.3 billion.
The prospect of further tariff battles has added uncertainty to global trade dynamics, even as nations scramble to secure exemptions and strike new deals ahead of fast-approaching deadlines.
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