Following the signing of a reciprocal tariff trade agreement, the United States has begun showing keen interest in Indonesia’s semiconductor sector. According to the Coordinating Minister for Economic Affairs, this emerging partnership signals Washington’s recognition of Indonesia’s industrial downstreaming drive and its growing role in the global supply chain.
The Indonesian President secured a trade agreement with the US President through a phone negotiation, leading to a reduction in US tariffs on Indonesian exports from 32% to 19%.
In July, a joint statement released on the White House website outlined a prospective trade framework under which Jakarta committed to purchasing USD 34 billion worth of US goods and reducing non-tariff barriers, including local content requirements for American firms. At the same time, the minister emphasized that the country would continue to implement measures aimed at reducing its reliance on the US market, despite its status as one of Indonesia’s largest export destinations.
The minister further stated that Indonesia intends to broaden its export reach by targeting non-traditional markets, including Africa and the Middle East. He also highlighted that the development of the semiconductor industry forms part of the government’s broader downstreaming strategy in the technology sector, designed to accelerate national economic growth.
In December, the minister said the government aims to boost investment by an average of 10% a year over the next five years, driven in part by the push to build a chipmaking industry seen as vital to meeting the President’s bold 8% growth target. He urged Indonesia to break its reliance on commodity exports and instead steer investment toward semiconductors and other high-value industries.
However, the minister acknowledged the intense competition in the global semiconductor industry, observing that the United States and European countries regard China’s dominance in the supply chain as a “wake-up call.” He noted that several countries, including the United States and Japan, have already initiated co-investment efforts to strengthen their positions in the sector.
The minister highlighted a potential downstreaming initiative involving the processing of silica sands, the primary raw material for silicon wafers, which serve as the foundation for both semiconductor chips and photovoltaic modules, commonly used in solar panels. He emphasized that such processing could simultaneously support two distinct manufacturing industries. According to the minister, facilities of this kind have already been established in Kendal, Central Java, and Gresik, East Java.
In 2023, Indonesia began drafting a roadmap to turn its silica resources into the basis for a homegrown semiconductor industry. The plan focuses on six areas: resources, industry players, technology, policy, talent, and market potential at home and abroad. Even so, experts warn that the country is lagging behind regional rivals, with chipmakers seeing Vietnam and Malaysia as “more optimal” production hubs.
(Source: The Star)
