Why Indonesia Should Ditch Trump's Mineral Trade Deal

The February 19 Indonesia-United States trade deal was heralded as a breakthrough. Headlines focused on tariff cuts and major business deals. But dig deeper into the critical minerals provisions, and you'll find a deal that might benefit one party far more than the other.

The Real Prize: Mineral Export Access

Beneath the diplomatic fanfare lies the agreement's true centerpiece: Indonesia's commitment to open critical mineral exports to the United States. While media coverage emphasized mutual benefits and expanded trade, the strategic reality is more complex.

Indonesia controls 37% of global nickel production—the largest share of any country. This isn't just about trade volumes; it's about securing supply chains for America's electric vehicle revolution. Under the Inflation Reduction Act, US consumers can only claim EV tax credits if 50% or more of battery minerals come from America or free trade agreement partners.

The timing isn't coincidental. President Joko Widodo faces mounting pressure to deliver economic wins before leaving office, while the Biden administration desperately needs to reduce China dependence in critical supply chains.

America's Strategic Calculus

From Washington's perspective, this deal solves multiple problems simultaneously. The US gets privileged access to Indonesian nickel, cobalt, and other battery materials without the geopolitical risks of Chinese-controlled supply chains.

The economics are compelling for America. Indonesian raw materials will feed US battery manufacturing, supporting domestic jobs while keeping costs competitive. Tesla, General Motors, and other automakers can now access Indonesian minerals for IRA-compliant vehicles.

But what about Indonesia's interests? The country has spent years trying to move beyond raw material exports toward value-added processing. This deal potentially undermines that strategy.

Indonesia's Development Dilemma

Indonesia has pursued an aggressive "downstream" policy since 2020, banning nickel ore exports to force domestic processing. The strategy worked—Chinese companies invested over $15 billion in Indonesian smelting and refining facilities.

The contradiction is stark. Indonesia wants to become the "Saudi Arabia of batteries"—not just supplying raw materials, but manufacturing finished products. Yet this deal incentivizes exactly the opposite: shipping unprocessed or minimally processed materials to American factories.

The China Factor

Beijing won't sit idle. Chinese companies have built extensive nickel processing infrastructure in Indonesia, creating thousands of jobs and generating billions in revenue. The US deal doesn't explicitly exclude China, but it creates competitive pressures that could strain existing partnerships.

Chinese Foreign Ministry statements have been diplomatically neutral, but industry sources suggest concern about losing preferred access to Indonesian materials. China's response could determine whether this becomes a win-win arrangement or a zero-sum competition.

For Indonesia, managing both relationships requires delicate balancing. Alienating China risks $15 billion in existing investments, while rejecting US overtures could mean missing out on the world's largest consumer market.

Long-term Strategic Concerns

Economists warn this deal could trigger "Dutch disease"—where resource exports strengthen the currency but weaken manufacturing competitiveness. Malaysia and Thailand successfully transitioned from commodity exporters to manufacturing hubs precisely by avoiding this trap.

Indonesia's own development goals emphasize moving up the value chain. The country aims to produce 20% of global EV batteries by 2030. Raw material exports to America could undermine the domestic industrial base needed for that ambition.

Environmental concerns add another layer. Indonesian mining expansion to meet US demand could accelerate deforestation and pollution, potentially triggering EU trade restrictions under new sustainability standards.

Alternative Pathways

Several ASEAN neighbors offer instructive examples. Vietnam leveraged foreign investment to build electronics manufacturing without sacrificing resource sovereignty. South Korea developed advanced materials industries by maintaining control over key inputs.

Indonesia could pursue a different approach: joint ventures requiring technology transfer, domestic content requirements for mineral exports, or gradual phase-ins that prioritize processed materials over raw ores.

The European Union is developing its own Critical Raw Materials Act, potentially offering Indonesia better terms for value-added exports. Diversifying partnerships might yield superior outcomes than bilateral dependence on America.