PALMOILMAGAZINE, JAKARTA – The domestic economic policy introduced under former U.S. President Donald Trump, particularly the imposition of high tariffs on trading partners, remains a major focal point in global trade dynamics.
This protectionist strategy aimed to boost the U.S. economy by reducing imports, encouraging local innovation, and increasing financial support for domestic industries. However, the ripple effects of these policies extend far beyond the U.S. — including significant consequences for Indonesia’s palm oil sector.
To address its financial deficit, the U.S. applied variable tariffs on goods from different countries. This approach mirrors the concept of traceability, requiring imports to comply with strict regulatory standards. Countries subject to these tariffs are often accused of breaching U.S. trade rules. Indonesia, for instance, now faces a steep 32% tariff, signaling the need to reevaluate our legal compliance in export trade.
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A Lesson from the Past
History has shown that economic turmoil in the U.S. can heavily impact Indonesia. The 2008 global financial crisis, triggered by the collapse of Lehman Brothers, caused palm oil prices to plummet. As a result, palm oil farmers in regions like Jambi and East Kalimantan suffered major economic setbacks, leading to widespread social consequences — including school dropouts among farmers’ children, rising poverty rates, and mental health challenges in rural communities.
Threats to Indonesia’s Palm Oil Industry
High U.S. tariffs pose a serious threat to Indonesia’s palm oil industry — a sector that is both labor- and capital-intensive. If companies respond by cutting back on fertilizers, labor, or oversight to reduce costs, production levels will inevitably fall. For palm oil, lower output translates directly into financial loss.
An alternative, though equally concerning, response would be to limit purchases of palm fruit from third parties or to lower buying prices from independent smallholders — moves that would disproportionately hurt small-scale farmers.
These risks are compounded by tightening regulations from the European Union, notably the European Union Deforestation Regulation (EUDR) set to take effect in 2026. While the U.S. raises tariffs, the EU is enforcing stricter rules, effectively squeezing palm oil exports from both ends. On top of that, many palm oil companies are already burdened by export taxes (PE and BK), which now total US$170 per metric ton.
Strategic Solutions for Indonesia’s Palm Oil Sector
In response to these mounting challenges, the following key strategies are recommended:
- Full Compliance with EU Regulations
Competing in the European market requires meeting the highest environmental and traceability standards. Strengthening partnerships with smallholders is essential to ensure Indonesia’s palm oil remains globally competitive. - Lobbying for Export Tax Reductions
Reducing PE and BK taxes would help stabilize fresh fruit bunch (FFB) prices, cushioning farmers from volatile international markets, especially the U.S. - Exploring New Export Markets
Indonesia must actively seek alternative markets by promoting ISPO-certified palm oil, which adheres to transparent and independent auditing standards, making it more attractive globally. - Establishing an Independent National Palm Oil Board
This body should operate free from political interference, focusing on the long-term sustainability and governance of the palm oil industry. - Ensuring Legal Certainty and Reducing Corruption
Improving the investment climate and eradicating corruption in the palm oil sector are vital to its continued sustainability and appeal to global markets.
With the right strategic approach, Indonesia’s palm oil industry still has significant potential to survive — and even thrive — amid increasingly complex global trade dynamics.
By: Mansuetus Darto, National Board Member, Oil Palm Smallholders Union (SPKS)
Disclaimer: The views expressed are those of the author and do not necessarily reflect those of the publication.
