Indonesia has agreed to a 19% tariff on all products entering the United States. This trade deal will mostly eliminate tariffs on American industrial, tech, and agricultural goods. Indonesia will provide important materials and engage in deals worth tens of billions for U.S. products like Boeing airplanes, farm products, and energy. The agreement is good news for American automakers, tech companies, workers, and farmers. Indonesia will follow U.S. safety standards for vehicles exported to America. The tariff on goods that pass through other countries (transshipped goods) will stay at 40%, but three inspection requirements will be removed. Indonesia will also stop trying to tax the internet and maintain its e-commerce freeze at the WTO.

Tariff Collection

The U.S. Treasury will collect the 19% tariff on all imported goods. It is not clear whether the costs will be paid by importers, Indonesia, or U.S. consumers. Importers will have to pay this tariff on Indonesian goods coming into the U.S. For 2024-2025, the U.S. expects to export $10.2 billion worth of goods to Indonesia, while imports from Indonesia are estimated to reach $28.1 billion. This results in a trade deficit of -$17.9 billion for the U.S. We suggest that derivative traders focus on the clear winners from this deal, announced by the Trump administration. This includes bullish positions on companies like Boeing, which has gained a significant deal, and the overall American industrial and agricultural sectors. Call options on aerospace (BA), agricultural ETFs (DBA), and major automakers (F, GM) may present immediate opportunities.

Market Impact and Predictions

However, we also need to consider how the new tariff will affect goods coming into the United States. The Office of the U.S. Trade Representative reports that top imports from Indonesia, like apparel, footwear, rubber, and furniture, totaled over $11 billion in 2022. We expect this will pressure the profit margins of U.S. companies that heavily depend on these products, making put options an option to consider for certain retail and manufacturing firms. The market’s response can be informed by past experiences, especially the U.S.-China trade war that started in 2018. During that time, tariffs created significant market fluctuations, and studies from organizations like the National Bureau of Economic Research found that U.S. importers and consumers paid most of the costs. This suggests the 19% tariff will likely be passed on to consumers, potentially hurting discretionary stocks as household budgets tighten. In foreign exchange, this deal seems beneficial for the U.S. dollar against the Indonesian Rupiah. With Indonesian exports to the U.S. becoming more expensive and the market opening to American goods, we expect the USD/IDR currency pair to strengthen. Traders might consider long positions in USD/IDR futures to take advantage of this expected change in trade flows. The agreements against transshipment and the renewed freeze on internet taxes are notable wins for the technology sector. Companies with complex global supply chains and digital service providers will face less risk and enjoy better market access. This enhances a positive outlook for technology ETFs like XLK, as the deal removes specific overseas regulatory challenges. Create your live VT Markets account and start trading now.

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