President Trump’s proposed tariffs – 60% on Chinese imports and 10% on goods from other regions, including Europe and South-east Asia – are poised to disrupt supply chains and create profound economic realignments. These policies could fundamentally alter the global industrial landscape.

South-east Asia, and Indonesia in particular, stands at a critical juncture to capitalise on this shift. With the right strategies and investments in infrastructure, energy and workforce development, Indonesia could potentially secure its place as a global manufacturing hub, driving robust economic growth and achieving prosperity under Indonesian President Prabowo Subianto’s leadership.

South-east Asia is well-positioned to benefit from these global realignments. As companies look to relocate supply chains away from China to avoid US tariffs, ASEAN nations such as Vietnam, Thailand and Indonesia are becoming increasingly attractive destinations, with competitive labour costs, improving infrastructure and strategic geographical advantages.

Indonesia’s manufacturing wage is relatively low compared to other emerging economies in Asia. In 2023, the average monthly wage in the manufacturing sector was around $200–300. This makes it attractive to industries looking to relocate from higher-cost economies like China.

Furthermore, Indonesia is making significant strides in infrastructure development through projects like the Trans-Java Toll Road, MRT Jakarta and the new capital city Nusantara. Investment in ports like Patimban, and airports, is enhancing connectivity, which aligns with the country’s National Medium-Term Development Plan (RPJMN).

Indonesia also has strategic geographical advantages, being located along vital maritime trade routes, like the Strait of Malacca, which handles a substantial portion of global shipping. And the country’s proximity to large consumer markets like China and India adds further value.

Indeed, the region as a whole looks poised to capture a significant share of global manufacturing activity.

Foreign investment opportunities 
Foreign direct investment (FDI) is projected to boost ASEAN’s annual GDP (gross domestic product) growth by 1–2% over the next five years, with a cumulative manufacturing output increase of up to 10% by 2030. Following the example of countries like Vietnam, which saw a surge in FDI as global supply chains have diversified, along with sustained infrastructure improvements and competitive incentives for foreign investors. 

This presents a rare opportunity for the region to cement its position as a vital link in global supply chains and accelerate economic integration. 

Indonesia, as South-east Asia’s largest economy, stands out as a key beneficiary of these shifts. The country’s current annual GDP growth of around 5% could naturally rise to 6% due to the relocation of industries and the diversification of global supply chains.

As well as the potential of manufacturers to migrate from China to ASEAN due to the tariff policies being imposed by the Trump administration.

However, with targeted reforms and strategic investments, Indonesia could achieve growth rates exceeding 8%/y, establishing itself as a central player in the new global industrial order.

Based on the prospect of ongoing shifts in global manufacturing hubs toward ASEAN, foreign investment will be based on high-value manufacturing sectors like electronics, automotive and textiles.

Therefore, Indonesia should be advised to focus on streamlining licensing processes, expanding education and vocational training programmes, reforming labour laws and land acquisition policies.

Key challenges 
Realising this potential, however, requires addressing several critical challenges.

One of the most pressing issues is meeting the energy demands of an expanding industrial base. To support the expected economic growth, Indonesia would need to add approximately 30–40 GW of power generation capacity within the next decade. Assuming annual electricity demand growth of ~6%, driven by industrialisation, population growth and urbanisation.

According to the Energy Institute’s Statistical Review of World Energy, Indonesia’s electricity generation grew by more than 135 TWh in the last decade. Therefore, the current installed capacity of approximately 85 GW would need to increase by ~35–50% over the next decade. The comparison to the 135 TWh increase over the past decade suggests that the additional demand is achievable but ambitious. It will require accelerated investments in renewables, grid modernisation and possibly natural gas for transitional energy security.

Expansion of power generation capacity will be crucial to meet rising demand from new manufacturing hubs, as well as residential and commercial sectors.

Additionally, fuel consumption is projected to increase by 15–20% per year, driven by heightened activity in the industrial and transportation sectors. Without adequate energy infrastructure, this growth could be constrained, limiting the country’s ability to attract and retain foreign investors.

To address these energy challenges, Indonesia must diversify its energy mix. In an ideal future energy mix, the country should rely on indigenous supply both in power and the fuel sector. In the power sector the baseload renewable energy supply is more important than variable renewable energy, such as hydropower, biomass and geothermal in comparison to PV (photovoltaics) and wind. Whilst in the fuel sector, bioenergy (which is abundantly available) is more promising than imported oil.

Nevertheless, oil and gas will still be needed at certain times, to meet downstream industrial strategies. Variable renewable energy sources will not be able to power all the growing energy demand. And moves towards net zero emissions by 2060 should allow for the introduction of nuclear power on the grid.

Expanding renewable energy capacity – such as solar, wind and geothermal – will be essential for long-term sustainability and energy security. While maintaining robust coal and natural gas supplies will ensure reliable base-load power for industrial operations in the interim.

Investments in energy infrastructure, including modernising the electricity grid and developing decentralised energy systems, will also be critical to ensuring a stable and resilient energy supply.

Beyond energy, Indonesia must take bold steps to streamline investment policies. Reducing ‘bureaucratic red tape’ and offering competitive incentives will make the country more attractive to global investors seeking to relocate their operations. Suggested initiatives include digitalising permit processes to reduce corruption and delays, as well as implementing a one-stop investment portal to streamline approvals.

Expanding industrial zones, upgrading port facilities and improving logistical networks will further enhance Indonesia’s ability to accommodate increased industrial activity and facilitate trade. These measures are particularly important for attracting high-value industries in electronics, automotive and advanced manufacturing.

With the right strategies and investments in infrastructure, energy and workforce development, Indonesia could potentially secure its place as a global manufacturing hub.

Sustainability issues
Sustainability must remain a central pillar of Indonesia’s growth strategy. Rapid industrialisation carries significant risks, including environmental degradation, deforestation and air pollution.

There are also issues to address in terms of environmental regulation. Currently, Indonesia has weak enforcement of environmental impact assessments (EIA). There are also gaps in monitoring industrial emissions and waste disposal. By adopting stringent environmental regulations and encouraging green manufacturing practices, the country can mitigate these risks and position itself as a leader in sustainable industrial development.

The creation of green industrial parks powered by renewable energy could attract environmentally conscious investors while reducing carbon emissions. Current examples of renewable energy initiatives include Kendal Industrial Park (Central Java) and the Batang Industrial Estate, which is focused on environmentally sustainable practices.

Equally important is investing in human capital. Indonesia must ensure that its workforce is prepared to meet the demands of an increasingly complex and technology-driven global economy. Tailoring vocational training programmes and higher education curricula to align with the needs of advanced industries will be crucial. Empowering the workforce with the necessary skills and knowledge will not only improve productivity but also ensure that the benefits of economic growth are widely shared across society.

Trump’s tariff policies and the accompanying shifts in global trade dynamics represent both a challenge and an opportunity for South-east Asia. For Indonesia, the stakes are particularly high. By acting decisively to address its energy, infrastructure and policy challenges, the country can transform these global realignments into a pathway for sustainable growth and economic leadership.

Under President Subianto’s vision of a modernised Indonesia – leveraging its natural and human resources to attract industries, create jobs and build resilience – the country has the potential to emerge as a global manufacturing powerhouse, securing a prosperous future for its people and playing a pivotal role in the global industrial landscape.

• Further reading: ‘Challenges facing ASEAN in the energy transition’. Find out what significant challenges ASEAN members face as they navigate the energy transition.
• Will 2025 be a transformative year for ASEAN collaboration? asks Peter Godfrey FEI, the Energy Institute’s Managing Director – Asia Pacific.