Indonesia Signals U-Turn on Global Tax Policy Following Trump’s Move—What’s Behind It?

Indonesia’s Sudden Shift on Global Minimum Tax

Indonesia has recently signaled a potential reversal of its Global Minimum Tax policy, which had been in place since early last year. This unexpected move was revealed by Coordinating Minister for Economic Affairs Airlangga Hartarto during the Indonesia Economic Summit, where he addressed hundreds of business leaders from both domestic and international markets.

The Trump Administration’s New Tax Policy

The key reason behind Indonesia’s shift is a policy change introduced by former U.S. President Donald Trump. On January 20, Trump issued an executive order directing the U.S. Treasury Department to withdraw from the global agreement that enforces a 15% minimum corporate tax rate. This decision has had a ripple effect on other countries, including Indonesia, which now considers following Trump’s lead in adjusting its tax regulations.

Why Did Trump Withdraw the U.S. from the Agreement?

Trump’s administration believes that the global tax agreement lacks significant economic benefits for the United States. According to his executive order, the policy does not provide a meaningful advantage to the American economy. Instead, Trump instructed the Treasury Department to develop protective measures for U.S. companies that could be affected by global tax policies in other countries. Furthermore, he tasked the department with monitoring foreign taxation policies that could potentially discriminate against American businesses.

Potential Global Impacts of Trump’s Decision

Finance Minister Sri Mulyani acknowledged that any policy decision made by the U.S. president has far-reaching consequences worldwide. Given America’s significant influence in global economics, changes in U.S. tax policies can create shifts in international financial strategies. While she did not explicitly outline the effects of Trump’s decision on Indonesia, she emphasized the importance of closely monitoring economic developments in response to this policy shift.

Could Trump Retaliate Against Countries That Maintain the Tax?

One of the concerns arising from Trump’s move is the possibility of retaliatory measures against countries that continue enforcing the global tax agreement. If history serves as a precedent, Trump has previously imposed high tariffs on countries he perceived as unfairly disadvantaging the U.S. economy. His aggressive stance on trade policies suggests that nations maintaining the Global Minimum Tax could face economic countermeasures from the U.S.

Historical Precedents: Trump’s Trade War Strategy

Trump’s approach to international trade has been marked by imposing high import tariffs on countries he considers economically unfair. A notable example was the trade war with China during his first presidential term. Frustrated by America’s trade deficit with China, Trump accused the country of engaging in unfair trade practices and responded by increasing tariffs on Chinese imports. Among the hardest-hit industries were solar panels and washing machines, where tariffs were raised to 30% and 20%, respectively.

Could Trump’s Second Term Bring More Economic Disruptions?

Since returning to office, Trump has shown no signs of changing his trade policies. Recently, he escalated trade tensions with Canada and Mexico by introducing a 25% tariff on imported goods from these countries. This aggressive stance raises concerns that he may impose similar measures on nations that continue to enforce the Global Minimum Tax, potentially affecting Indonesia’s economic policies.

How Will Indonesia Proceed?

As the global economic landscape shifts, Indonesia is carefully evaluating its next steps. The government is likely weighing the potential benefits of maintaining the Global Minimum Tax against the risks of possible economic backlash from the United States. If Trump continues his protectionist policies, Indonesia may seek alternative strategies to safeguard its economy while remaining competitive in the global market.

Conclusion: A Strategic Move or a Forced Adjustment?

Indonesia’s decision to reconsider its Global Minimum Tax policy reflects the broader economic influence of the United States. With Trump’s administration prioritizing American corporate interests, countries like Indonesia may feel compelled to adapt their tax regulations to avoid potential economic repercussions. Whether this shift is a strategic move or a necessary adjustment to global economic pressures remains to be seen. However, one thing is certain—Trump’s policies continue to shape international financial strategies, forcing nations to reassess their economic frameworks.