HANOI — The United States and Indonesia finalized a trade agreement on March 20 in Hanoi that expands U.S. access to Indonesia's critical minerals and energy sectors while reducing tariffs on Indonesian exports. The United States reduced a threatened 32% tariff on Indonesian goods to 19% and granted zero-tariff entry for Indonesian palm oil, coffee, cocoa, spices, and rubber.

Under the minerals provisions, Indonesia agreed to widen access for U.S. investors in critical minerals and pledged to promote U.S. investment across its mineral industry, including exploration, mining, refining, transport, and export. American investors will receive treatment no less favorable than domestic firms in some cases under the agreement. The agreement relaxes restrictions on exports of critical minerals to the United States and promises greater certainty for companies involved in extracting Indonesia's rare earths and critical minerals to help boost production.

The agreement introduces new restrictions on existing foreign-owned entities in Indonesia's critical mineral sector aimed at curbing output from processing plants. Foreign businesses in Indonesia must follow the same tax, environmental, labor, and quota rules as domestic companies under the agreement. Indonesia is the world's largest nickel producer and has vast reserves of minerals used for electric vehicles and clean energy systems.

Indonesia agreed to boost its purchases of U.S. crude and liquefied petroleum gas and plans to buy $15 billion worth of American energy commodities, mainly liquefied petroleum gas, crude oil, and gasoline, over an unspecified period. Indonesia agreed to cut red tape to enable its companies to purchase U.S. energy products more easily. "The deal's energy provisions balance foreign trade and meet domestic energy needs," said Haryo Limanseto, Coordinating Minister for Economic Affairs.

Indonesia pledged to work with the United States and Japan to deploy small modular nuclear reactors, starting with a potential project in West Kalimantan. Indonesia, one of the world's top coal exporters, will invest in developing a U.S. West Coast export corridor to make American coal more competitive in global markets.

"The agreement opens the door for U.S. firms to have a real shot at modestly leveling a sector where Chinese industries established first mover advantage," said Kevin Zongzhe Li, Policy analyst at the Asia Society Policy Institute. "Indonesia is absolutely central to this competition because it combines resource endowment with political ambition." Indonesia's critical mineral processing sector is currently dominated by Chinese firms operating or financing multiple nickel smelters and industrial parks. The agreement requires ratification by Indonesia's parliament before it can take effect.