The Impact Of Trump's Tariffs On Domestic Inflation Is Minimal; The Government Is Urged To Remain Vigilant

KONTAN/Carolus Agus Waluyo

The Impact Of Trump's Tariffs On Domestic Inflation Is Minimal; The Government Is Urged To Remain Vigilant

Monday, 21 Apr 2025

The imposition of a 32% import tariff by the United States on products from Indonesia is not expected to have a significant impact on domestic inflation.

Nevertheless, the government is advised to remain vigilant regarding the potential long-term effects of this policy on the national economy.

Piter Abdullah, an economist at Segara Institute, has expressed support for the Indonesian government's decision to refrain from retaliatory tariffs and to pursue diplomatic channels instead.

He believes that the U.S. tariff policy will not have an immediate effect on domestic inflation. "The United States is more likely to experience inflationary pressures," Piter stated on Wednesday, April 16. However, he cautioned that the protectionist measures implemented by President Donald Trump could trigger a global trade war, which may hinder worldwide economic growth.

In such a scenario, Indonesia's exports to the U.S. and other countries could be adversely affected, potentially slowing down national economic growth.

If economic growth decelerates, Piter predicts an increased risk of layoffs and a deeper decline in consumer purchasing power. "Weak purchasing power will lead to low inflation. However, I believe that deflation is no longer a concern as of March and April," he clarified.

Similarly, M. Rizal Taufikurahman, Head of Macroeconomics and Finance at the Institute for Development of Economics and Finance (Indef), believes that the risk of inflation could rise if Indonesia responds to Trump's tariff policy with similar measures.

This risk would be exacerbated by a depreciation of the rupiah due to heightened global uncertainty and capital outflows towards U.S. dollar assets.

Rizal asserts that inflation stability can only be maintained through effective policy synergy between fiscal and monetary authorities.

He further emphasized that Bank Indonesia (BI) should optimize its exchange rate stabilization instruments and manage inflation expectations, even though tightening monetary policy may suppress consumption.