Trump demands on mining, China snarl US-Indonesia trade deal

Indonesia is resisting US trade deal demands that it fears would restrain its independence, particularly in critical minerals and energy that risk its relations with China and Russia, according to people familiar with the situation.

Since the US and Indonesia reached a framework in July that set a 19% tariff rate, the Trump administration has pushed Jakarta to agree to terms that would potentially restrain its relationship with China, one of its biggest foreign investors, according to the people, who asked not be identified as the talks aren’t public.

The impasse has sparked frictions with Washington and risks upending that agreement. The Trump administration has accused Indonesia of backtracking on its earlier commitments and sees the deal at risk of collapsing, the Financial Times and Reuters reported this week, citing US officials they didn’t identify.

The trade demands that Indonesia sees as new include clauses allowing Washington to scrap the deal if Jakarta signs other pacts that it deems jeopardize US interests, according to one of the people. Economic Minister Airlangga Hartarto and US Trade Representative Jamieson Greer are aiming to hold a virtual meeting Thursday to discuss the issue, the person added.

Asked about the status of the talks on Wednesday, Greer confirmed tomorrow’s meeting is scheduled but declined to comment on the specifics of any friction.

“We have confidentiality agreements between us and Indonesia as we proceed. But what I will say: I think it’s meaningful that we have signed agreements at the ASEAN conference in October with Malaysia and Cambodia,” Greer told a gathering at the Atlantic Council. “I would love for Indonesia to be in that same position.”

The main sticking point centers around cooperation on critical minerals development, which the US has prioritized given China’s control of the supply chain, as well as oil and gas investments, people familiar with the matter said. The US has signaled that it intends to require any cooperation in the sector to exclude any third party. That would have implications for Indonesia’s relations with China and Russia, which are major investors in its mining and energy sectors, the people said.

Indonesia said Wednesday, in response to reports of the US accusations, that negotiations are ongoing and that it expects to reach an agreement soon that is “beneficial for both parties.”

“There are no specific issues in the negotiations, and dynamics in the negotiation process are normal,” Coordinating Ministry for Economic Affairs spokesperson Haryo Limanseto told Bloomberg News.

American jets

Under the deal reached in July, Indonesia agreed to purchase some $19 billion in American products, led by 50 Boeing Co. jets, and erase duties on imports from the US.

The Southeast Asian country also agreed to eliminate some requirements, including local-content rules, that had complicated efforts to sell American products in the country. President Donald Trump said at the time he had dealt directly with Indonesian President Prabowo Subianto to finalize the agreement.

Since then, Trump unveiled a flurry of trade deals and frameworks with Thailand, Cambodia, Vietnam and Malaysia that saw similar commitments to reduce tariff barriers, including on industrial and agricultural products.

But concerns over sovereignty and relations with China emerged in the Malaysia and Cambodia deals, reached in October, which included language that sought to align or constrain those countries policies. The Malaysia agreement, for example, said the US can terminate it “if Malaysia enters into a new bilateral free trade agreement or preferential economic agreement with a country that jeopardizes essential US interests.”

As well, China last month demanded clarifications from both Malaysia and Cambodia on portions of their deals that sparked “grave concerns” by Beijing, which it didn’t specify.

The critical minerals issue is particularly knotty for Indonesia and its relationship with China. Indonesia has relied heavily on China for much of the capital, technology and processing capacity behind upgrading country’s nickel and bauxite industries.

Deputy Minister of Investment and Downstream Industry Todotua Pasaribu in August noted that China’s investment in Indonesia has grown by 31% over the past six years, according to Indonesia’s Tempo.

Chinese investment from 2020 to this year topped $35 billion, Todotua said, with metal processing accounting for more than $15 billion of that.

(By Faris Mokhtar and Grace Sihombing)