INTERNATIONAL
Indonesian garment factory looks to reduce focus on US exports despite tariff deal
Factory workers at garment factory, Semarang, Central Java Province, Indonesia. - REUTERS
SEMARANG, Indonesia: Hidden among heavy machinery and the hum of sewing machines, 62-year-old Deddy Mulyadi was at a crossroads.
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The garment factory he's managed for 27 years is one of many suppliers in Indonesia for large U.S.-based clothing companies, which source products for brands such as H&M, Zara, and American Eagle.
Now those factories, including Deddy's, must try to weather the storm caused by Trump's 19% export tariffs deal between the U.S. and Indonesia.
Deddy, whose factory exports 80% of its manufactured goods to the U.S., said he's already experiencing cancellations from buyers.
"All of our estimates have been thrown off," Deddy told Reuters during an interview. "Now with the tariff war hitting our regular market in the U.S., it has affected our margins."
The U.S. is Indonesia's largest destination for garments and textile exports, according to Indonesia's Center of Statistics.
Around 155 out of 299 thousand tonnes, or around 51%, of Indonesia's garment exports made it to the U.S. last year, according to the agency.
The U.S. tariff rate on Indonesia, Southeast Asia's largest economy, matches the 19% announced for the Philippines earlier this month. Vietnam's tariff rate has been set at 20%.
"If our prices are much cheaper than these competitors we will become the U.S.'s destination for investing in branded product manufacturing, so this could be an opportunity for us if the 19% tariffs on our products end up being the lowest among ASEAN countries," said Deddy.
The Indonesia deal was among only a handful reached by the Trump administration ahead of an August 1 deadline, when higher tariffs kicked in.
Trade and investment analyst Andry Satrio Nugroho said the deal could be an opportunity for Indonesia to trumpet its exported goods if other Southeast Asian export competitors lose to higher tariffs, but caution is still needed.
"The 32% to 19% tariff drop is much better even though there's still a high tariff there. This gives some breathing room to the manufacturers of these products while we eye opportunities to not rely on the U.S. market," Andry said. "We have to switch as soon as possible to other first-world countries."
Determined to keep the factory afloat with the threat of cost-cutting looming, Deddy shared a similar vision.
"We have not yet entered countries around Russia and Spain, it will be our next target," he said, also citing Japan and Europe as possible future markets. "So that is our goal, especially to look for new market prospects and start approaching countries that are not American markets."
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AI Brief
- Indonesia's garment industry faces disruption from a 19% US tariff, causing order cancellations and margin losses.
- Officials see potential opportunity if Indonesia's tariff remains lower than competitors like Vietnam and the Philippines.
- Manufacturers aim to diversify exports beyond the US, targeting markets in Europe, Japan, and Russia.
The garment factory he's managed for 27 years is one of many suppliers in Indonesia for large U.S.-based clothing companies, which source products for brands such as H&M, Zara, and American Eagle.
Now those factories, including Deddy's, must try to weather the storm caused by Trump's 19% export tariffs deal between the U.S. and Indonesia.
Deddy, whose factory exports 80% of its manufactured goods to the U.S., said he's already experiencing cancellations from buyers.
"All of our estimates have been thrown off," Deddy told Reuters during an interview. "Now with the tariff war hitting our regular market in the U.S., it has affected our margins."
The U.S. is Indonesia's largest destination for garments and textile exports, according to Indonesia's Center of Statistics.
Around 155 out of 299 thousand tonnes, or around 51%, of Indonesia's garment exports made it to the U.S. last year, according to the agency.
The U.S. tariff rate on Indonesia, Southeast Asia's largest economy, matches the 19% announced for the Philippines earlier this month. Vietnam's tariff rate has been set at 20%.
"If our prices are much cheaper than these competitors we will become the U.S.'s destination for investing in branded product manufacturing, so this could be an opportunity for us if the 19% tariffs on our products end up being the lowest among ASEAN countries," said Deddy.
The Indonesia deal was among only a handful reached by the Trump administration ahead of an August 1 deadline, when higher tariffs kicked in.
Trade and investment analyst Andry Satrio Nugroho said the deal could be an opportunity for Indonesia to trumpet its exported goods if other Southeast Asian export competitors lose to higher tariffs, but caution is still needed.
"The 32% to 19% tariff drop is much better even though there's still a high tariff there. This gives some breathing room to the manufacturers of these products while we eye opportunities to not rely on the U.S. market," Andry said. "We have to switch as soon as possible to other first-world countries."
Determined to keep the factory afloat with the threat of cost-cutting looming, Deddy shared a similar vision.
"We have not yet entered countries around Russia and Spain, it will be our next target," he said, also citing Japan and Europe as possible future markets. "So that is our goal, especially to look for new market prospects and start approaching countries that are not American markets."