Indonesian palm oil companies are proactively seeking new markets in Europe, Africa, and the Middle East to mitigate potential repercussions from Donald Trump's trade war. This strategic shift aims to safeguard their industry dominance amidst evolving global trade dynamics. Indonesia, the world's leading producer of palm oil, accounts for over half of the global supply of this versatile edible oil, essential in producing various consumer goods, including cakes, chocolate, margarine, cosmetics, soap, and shampoo.

The imposition of 32 percent tariffs by the U.S. has positioned Indonesia as one of Asia's most affected economies. Palm oil constitutes a significant portion of Indonesia's exports to the United States. While a temporary 90-day pause has been announced on implementing these levies, Indonesian producers remain wary, prompting them to explore alternative markets to sustain their operations.

Eddy Martono, chairman of the Indonesian Palm Oil Association (GAPKI), views the pause as an opportunity for negotiation, expressing optimism that products can continue to enter the U.S. market. However, he emphasized the necessity of market diversification to mitigate potential impacts if tariffs are enforced later in the year. The focus will be on Africa, particularly Egypt, a major importer, as well as the Middle East, Central Asia, and Eastern Europe.

Martono underscored the importance of reducing reliance on traditional markets and actively pursuing new opportunities. Data from GAPKI indicates steady growth in palm oil product exports to the United States, increasing from 1.5 million tons in 2020 to 2.5 million tons in 2023. Martono urged the Indonesian government to maintain its market dominance through negotiations, especially considering that Malaysia, a competing palm oil producer, faces lower tariffs.

According to Indonesian government data, the United States ranked as the fourth-largest importer of palm oil in 2023, following China, India, and Pakistan. Despite potential challenges, Martono remains confident that the U.S. will still require Indonesian palm oil, particularly for its food industry. He anticipates a slight decline or stagnation in exports to the U.S. and suggests that American consumers may bear the brunt due to their dependence on palm oil for essential food products.

In response to these concerns, Indonesian Finance Minister Sri Mulyani announced a reduction in crude palm oil export tax to alleviate some of the economic strain. While Eddy Martono welcomed this move, emphasizing its potential to enhance the competitiveness of Indonesian palm oil exports, the threatened tariffs continue to worry the country's 2.5 million smallholder palm oil farmers.

Mansuetus Darto, chairman of the Palm Oil Farmers Union (SPKS), cautioned that the measures could have far-reaching implications if an agreement is not reached. He warned of potential overcapacity in existing plants, leading to raw material accumulation and preventing farmers from harvesting. President Prabowo Subianto has chosen negotiation over retaliation, planning to send a high-level delegation to Washington later this month.

Prabowo acknowledged that Trump's levies might inadvertently benefit Indonesia by compelling it to enhance efficiency, despite the U.S.'s concerns over its billion-dollar trade surplus with Indonesia. Chief economic minister Airlangga Hartarto indicated that Jakarta intends to increase purchases of products like liquefied natural gas and liquefied petroleum gas to narrow the trade gap with the U.S.

This approach has instilled hope within the industry that a deal with Trump is achievable. However, should negotiations fail, they will be compelled to seek alternative markets. Mansuetus expressed optimism following the pause announcement, urging the government to prepare for robust negotiations with the U.S. government to secure a favorable outcome.