When Beijing’s foreign ministry issued its now-familiar line that the recent Indonesia‑US trade agreement “should not harm any third party,” some analysts urgently warned of possible economic retaliation.
Yet a closer look at the geopolitical economics suggests this framing misunderstands both China’s incentives and the real dynamics at play. China isn’t preparing to hit back at Jakarta — and if it reacts at all, it won’t target Indonesia but the US.
On February 19, Indonesia and the US signed the Agreement on Reciprocal Trade (ART), a deal that sets a 19% tariff level on many goods and restructures a significant portion of their commercial relationship.
The pact — still subject to legislative ratification — contains a provision that Indonesia “shall implement measures that have the same restrictive effects” as US customs duties or sanctions on “third countries.”
While US officials have refrained from naming any specific rival, it’s widely interpreted as intended to constrain Chinese exports that might be transhipped through Indonesia.
For many commentators, that was enough to predict retaliation from Beijing — a trade war between export superpowers that would drag Indonesia into the crossfire. Some senior economists even speculated that China might impose non‑tariff barriers or legal actions on Indonesian goods in multilateral forums.
But here’s the key misunderstanding: China doesn’t see Indonesia as the aggressor; it sees the US as the source of pressure. Beijing’s official rhetoric reflects this.
In diplomatic parlance, “third party” warnings are standard boilerplate. China’s foreign ministry has repeatedly made this seemingly neutral appeal in response to a series of US trade agreements across Asia and beyond.
These pronouncements serve a clear rhetorical purpose: they paint the US as the provocateur and establish China as a defender of trade multilateralism. But rhetoric is not a reliable predictor of retaliatory action.
Look at how China responded to Panama when that Central American country shifted its allegiance away from Beijing’s Belt and Road Initiative. China protested, but it didn’t follow through with punitive trade measures.
That was not because Panama’s decision had no impact — it did, in symbolic and investment terms — but because it did not directly threaten China’s core economic interests.
Beijing’s tolerance for these kinds of setbacks is high when the geopolitical and commercial stakes are peripheral. It becomes punitive only when strategic interests feel existentially threatened, such as control over a critical resource or a chokepoint in global commerce.
Viewed through that lens, Indonesia’s ART may well concern Beijing, but it doesn’t rise to the level that would provoke retaliation outside of the diplomatic sphere.
Indonesia and China remain deeply intertwined economically: China is Indonesia’s largest trading partner, with a massive volume of goods flowing between them under preferential terms, including through ASEAN frameworks.
China’s calculated response to the US-Indonesia agreement reflects this reality. It has sounded cautious — calling for trade cooperation that doesn’t harm third parties — but has stopped short of threatening punitive measures. That suggests Beijing calculates that its long‑term linkages with Indonesia outweigh the short‑term discomfort of a US‑tilted trade deal.
There is also a strategic element to Beijing’s restraint. Asia is an arena of intense economic competition between the US and China. Beijing knows that burdening Indonesia with tariffs or exclusionary practices risks pushing Jakarta closer to Washington in an already fraught relationship.
For China, this would be a lose‑lose strategy: either it alienates Jakarta and forfeits influence, or it refrains from retaliation, accepts the trade deal as a reality of great‑power competition and focuses on expanding commercial ties where it holds a comparative advantage. The latter is far more rational.
If China were to retaliate, it wouldn’t be over this trade deal itself. Beijing’s pattern over the past decade shows selective retaliation only when measured actions directly threaten its core interests.
That is, for example, when foreign powers impose tariffs or sanctions that meaningfully disrupt Chinese industries, or when they challenge territorial or strategic assets central to China’s security calculus. Adjusting tariff rates or negotiating reciprocal terms with Indonesia does not reach that threshold.
Moreover, tying retaliation to Indonesia’s recalibration of trade policy could undo years of painstaking relationship building and management. Beijing has invested heavily in economic corridors, bilateral initiatives and industrial cooperation with Jakarta.
These are not symbolic projects; they represent real Chinese capital and livelihoods intertwined with the Indonesian economy. China is unlikely to jeopardize that for a provision that, in isolation, shifts leverage only modestly.
Indeed, as global trade realignments continue, nations like Indonesia will increasingly find themselves balancing competing powerful interests, seeking diversification without provoking Beijing or Washington. China, for its part, recognizes this delicate dance and is content to deploy diplomatic rhetoric while stopping short of retaliation unless a red line is unequivocally crossed.
In short, China’s measured response is not a sign of weakness. It’s a signal that Beijing understands the game of high‑stakes economics — and knows when to pick its fights. On the complex chessboard of US‑China rivalry, Indonesia is not the pawn; Washington and Beijing are the opponents. China may complain, but it won’t pull its knight off the board to checkmate Jakarta.
Muhammad Zulfikar Rakhmat is director of the China-Indonesia Desk at the Jakarta-based Center of Economic and Law Studies (CELIOS) independent research institute.
