Global trade has once again been shaken by a dramatic shift in US protectionist policy, and Indonesia is once again in the crosshairs.
The change has been driven by a series of targeted investigations conducted under Section 301 of the US Trade Act of 1974, a domestic legal instrument that has become Washington’s new preferred tool for trade enforcement.
It marks a clear departure from the sweeping global tariffs previously imposed under the International Emergency Economic Powers Act (IEEPA), which the US Supreme Court struck down on February 20, 2026, on the grounds that they exceeded President Donald Trump’s executive authority.
Following that ruling, the Trump administration introduced a temporary 10% tariff on February 21, 2026, before launching parallel Section 301 investigations on March 11 and 12. These investigations have since become the foundation of a more structured and legally defensible protectionist strategy.
The key difference between the 2026 Section 301 tariffs and the reciprocal tariffs announced in April 2025 lies in both methodology and legal scope. The earlier reciprocal tariffs relied on a broad macroeconomic formula that linked tariff rates to America’s bilateral trade deficits with individual partners, largely ignoring actual tariff structures.
Under that framework, Indonesia faced the prospect of tariffs as high as 32%. By contrast, the new Section 301 regime employs a tiered enforcement system and allows for tariff stacking, with penalties imposed only after formal investigations and public hearings.
For Indonesia, this new wave of protectionism presents a serious macroeconomic challenge. The US has long been one of Indonesia’s most important export destinations, generating a consistent trade surplus that supports the country’s balance of payments.
Indonesian exports to the US reached US$31.02 billion in 2025. That performance is now under threat from a tariff-stacking mechanism that could ultimately raise duties on Indonesian exports to an effective rate of 18%. The new measures are expected to be phased in after the temporary tariff arrangement expires on July 24, 2026.
Indonesia’s position has become even more vulnerable because several trade privileges that once cushioned exporters have disappeared. The Generalized System of Preferences (GSP), which granted tariff advantages to thousands of Indonesian export products, lapsed after congressional authorization expired.
Without GSP benefits, Indonesian goods now compete on equal footing with products from advanced economies, eroding their price competitiveness in the US market. Consequently, the Agreement on Reciprocal Trade (ART), signed on February 27, 2026, which promised zero tariffs on 1,819 tariff lines, now faces the risk of being overshadowed by a new layer of Section 301 duties.
Tariff stacking logic
Washington’s latest use of Section 301 reflects a more sophisticated form of protectionism. Rather than relying solely on economic arguments, the policy increasingly invokes human rights and legal compliance concerns to justify trade restrictions.
On June 2, 2026, the Office of the United States Trade Representative (USTR) released findings from an investigation covering 60 trading partners. The report divided countries into categories based on their record in addressing forced labor concerns.
Indonesia was placed in a group of six economies, alongside Canada, Ecuador, the European Union, Mexico and Pakistan, that were deemed to have formal prohibitions against forced labor but insufficient enforcement mechanisms. As a result, Indonesia was recommended for an additional 10% tariff.
In relative terms, Indonesia fared better than several major regional competitors. Vietnam, China, India, and Brazil were each proposed for a 12.5% tariff increase because they were judged to lack adequate legal mechanisms to block imports produced with forced labor.
Yet Indonesia should not draw excessive comfort from this classification. A 10% tariff remains a substantial cost burden for exporters already grappling with rising domestic production expenses.
The greater concern is that these tariffs are cumulative. The forced-labor investigation is running alongside another Section 301 inquiry focused on structural overcapacity in manufacturing. Indonesia is being examined together with major industrial players, including China, the European Union, Singapore and Malaysia.
Under the tariff-stacking mechanism, the 10% duty related to forced labor concerns would be imposed after July 24, 2026. Additional tariffs linked to manufacturing overcapacity could then be layered on top weeks later. Without product-specific exclusions, Indonesia could face the worst-case scenario of an effective tariff burden reaching 18%.
Palm oil and fisheries
Indonesia would be mistaken to view these tariffs solely as an expression of American protectionism. The investigations also expose genuine weaknesses in the enforcement of labor standards at home.
A detailed review by the US Department of Labor identified strong indications of forced labor practices in two of Indonesia’s most important export sectors: palm oil and fisheries. These findings provide the political and moral rationale underpinning the USTR’s tariff recommendations.
In the palm oil industry, which employs millions of workers, investigators highlighted evidence of systemic debt bondage. Domestic migrant workers are often required to pay substantial recruitment fees to labor brokers before beginning employment.
Many plantation operators also impose unrealistic harvesting quotas that effectively force employees to work beyond legal limits without additional compensation, often under threat of wage deductions. The report further pointed to poor living conditions in remote plantation areas and the routine exposure of workers to hazardous pesticides without adequate protective equipment.
Together, these practices suggest structural labor governance problems that extend well beyond isolated incidents.
Similar concerns have emerged in the fisheries sector. Indonesian crew members working aboard fishing vessels have been identified as one of the largest groups vulnerable to forced labor within the regional maritime industry.
Reported abuses include confiscation of identity documents, excessively long working hours, physical violence and the withholding of wages by recruitment agencies. These realities underscore a fundamental problem: Indonesia possesses the legal framework needed to combat labor exploitation, but enforcement remains inconsistent and often ineffective.
The economic consequences will be significant. Palm oil exports to the US were valued at $2.06 billion in 2025, while fisheries exports reached $1.17 billion. Weak labor oversight is no longer merely a social issue; it has become a direct macroeconomic liability. Structural failures in protecting workers are increasingly translating into higher market-access costs and diminishing the competitiveness of Indonesian exports abroad.
Diplomatic roadmap
The potential economic fallout from an 18% tariff burden should not be underestimated. A decline in exports to the US would place additional pressure on Indonesia’s balance of payments and could further destabilize the rupiah, which has recently experienced sharp volatility, weakening beyond 18,000 per US dollar in early June.
A weaker currency risks fueling inflation through higher import costs for industrial inputs. At the same time, uncertainty surrounding future tariff measures could undermine foreign investor confidence and complicate Indonesia’s bid to secure full membership in the OECD.
Recognizing the seriousness of the threat, Jakarta has already gone on the diplomatic offensive. During the OECD Ministerial Council Meeting in Paris, Coordinating Minister for Economic Affairs Airlangga Hartarto held direct discussions with USTR Ambassador Jamieson Greer.
The talks reportedly produced an encouraging initial outcome. The USTR signaled its willingness to approve 18 product exclusions for Indonesia under the Section 301 process. Strategic exports such as palm oil, coffee, beef, fruits, vegetables, pharmaceuticals, organic chemicals and rare-earth materials are expected to be exempt from the forced-labor tariff measures.
The more difficult battle, however, concerns Indonesia’s labor-intensive manufacturing industries, particularly textiles, apparel, footwear and furniture. In 2025 alone, exports of knitted garments, footwear, non-knitted apparel and furniture generated more than $9.1 billion in sales to the American market.
These industries operate in highly price-sensitive global markets. Should tariffs approaching 18% be imposed on these sectors, American importers may shift orders elsewhere. The result could be a wave of factory closures and mass layoffs with potentially serious social consequences.
The immediate priority is therefore clear. Indonesia must use the written-comment period before the July 6, 2026, deadline and fully engage in the USTR public hearings scheduled for July 7.
Government officials and industry representatives need to present compelling legal arguments and robust empirical evidence to secure product exclusions and pursue tariff-free quota arrangements for textiles and apparel.
At the same time, labor governance reforms in the palm oil and maritime sectors must move beyond promises and become visible, measurable realities. Safeguarding tens of billions of dollars in exports to the US can no longer depend on diplomatic goodwill alone.
It will ultimately require credible legal reforms, stronger enforcement and demonstrable compliance with global labor standards.
Ronny P Sasmita is senior international affairs analyst, Indonesia Strategic and Economic Action Institution, a Jakarta-based think tank
