A US trade deal pokes a hole in Indonesia's 'make it here' rules

Indonesia has long tried to build its own industries by forcing companies to use local parts and labour, a policy called local content requirements. But a new US trade deal punches a hole in it. Writing in The Diplomat, the analysis notes that the Reciprocal Trade Agreement with Washington exempts American firms and goods from these rules, a concession critics find hard to swallow.

Local content requirements aim to make sure that when big projects happen in Indonesia, the money and skills stay in the country rather than flowing straight abroad. Indonesia wants to lift manufacturing to about 20 percent of its economy by 2029, up from a stuck 18 to 19 percent. But the piece argues these rules are no magic shortcut. It contrasts success stories like Norway, which built a national oil champion, and China's gradual push in wind power, with countries like Nigeria, where similar rules mainly enriched a well-connected elite.

The lesson, drawing on Nobel-winning economists, is that the rules only work when a country's institutions are strong enough to enforce them fairly. Exempting American firms while keeping the rules for everyone else, the author suggests, could weaken the policy without fixing its deeper problems.

Why it matters

Whether Indonesia can turn its raw materials and big projects into lasting industries and jobs depends on rules like these, and on enforcing them well. Carving out exceptions for one powerful partner can undercut the whole effort. Watch how the government applies local-content rules after the US deal, and whether manufacturing actually grows.