The Purchasing Managers' Index (PMI), an indicator that reflects manufacturing activity in Indonesia, plummeted in April 2025 amid heightened trade war tensions, stemming from the high reciprocal tariff policies imposed by US President Donald Trump on its main trading partners, including Indonesia.

The Manufacturing PMI released by S&P Global today, Friday (April 2, 2025), for Indonesia was only 46.7, a decline from 52.4 in March 2025. This marks the first time the PMI has recorded a contraction since November 2024. The PMI uses 50 as its starting point. A reading above 50 indicates the business sector is in an expansionary phase. A reading below 50 indicates contraction.

Coordinating Minister for Economic Affairs Airlangga Hartarto stated that the decline in the Manufacturing PMI was due to the trade war, which has weakened business optimism in Indonesia and around the world. This is because the trade war is hampering global trade activity.

"The PMI dropped because of the trade war. So, global trade is shrinking, and American growth is also negative. So, this is optimism being disrupted by the trade war," said Airlangga at his office in Jakarta, Friday (May 2, 2025).

To address this industrial sentiment issue, Airlangga stated that the government has launched several strategies. These include diversifying Indonesia's export markets beyond its main trading partners, such as China and the US, which are currently engaged in a trade war. One strategy is to expand the European export market by accelerating the Indonesia-European Union Comprehensive Economic Partnership Agreement (IEU-CEPA).

"We are pushing for the IEU CEPA. It's time to diversify export markets and lower tariff barriers. If we lower them, others will also reciprocally lower them, making our products more competitive," Airlangga said.

In addition to diversifying export markets, Airlangga emphasized that the government is also developing deregulation policies to further stimulate Indonesia's international trade activities, through the Deregulation Task Force.

The Deregulation Task Force will prepare a package of trade facilitation policies, such as implementing a flexible Domestic Component Level (TKDN) policy and eliminating import quotas.

"Deregulation is underway, and the task force is working on it. We'll likely issue policy packages soon," Airlangga said.

He also emphasized that the government is continuing to finalize tariff negotiations with the US to avoid imposing a 32% reciprocal tariff on Indonesian goods. He assured that the results of these negotiations would be finalized within the next 2-3 weeks.

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