Twelve local business associations recently met with Coordinating Economic Affairs Minister Airlangga Hartarto to discuss potential revisions to the local content requirement (TKDN) policy. The meeting followed the United States' decision to impose new tariffs, up to 32 percent, on several Indonesian exports, citing the TKDN policy as a key trade barrier. While some business groups urged the government to relax the TKDN rules to help manufacturers remain competitive, others called for maintaining the current regulations.

This renewed attention has reignited a larger conversation regarding whether or not Indonesia should completely overhaul its TKDN framework. Instead of sticking with a rigid mandatory threshold, some stakeholders are now proposing a shift to an incentive-based system that would reward companies for using local content rather than punishing them for failing to meet minimum thresholds.

Minister Airlangga noted that the US proposal regarding the local content rule adjustment is quite flexible, which is to relax the TKDN threshold rule for goods that are not directly tied to imports or exports, such as goods for domestic infrastructure projects. While this concession from the US would not necessarily stop the tariffs from going into effect, it could encourage foreign investment in several emerging sectors that Indonesia sees as key for future growth. One such sector is data centers, which are drawing increasing interest from international tech companies.

This proposal coincides with the government's slowly changing stance on the TKDN. Under former president Joko "Jokowi" Widodo, the policy was seen as one of the administration's signature industrial strategies. But the current government appears to view the policy as too rigid. A recent flashpoint was Apple's iPhone 16, which was initially blocked from being sold in Indonesia after it failed to meet the TKDN standards. That issue was only resolved when Apple agreed to a US$320 million investment deal in March. Soon after, Minister Airlangga signaled that the government might be ready to review the TKDN, at least for the information and communications technology (ICT) sector.

On the other hand, not everyone is on board with loosening the TKDN. Many domestic firms have benefited from the rule, especially in ICT, and fear they would be left at a disadvantage if the policy is scaled back. A spokesperson for the Indonesian Electronics Industries Association (Gabel) warned that local electronics producers could have trouble competing against foreign manufacturers, especially when it comes to securing government procurement contracts.

Furthermore, the TKDN was a major factor behind why global smartphone brands such as Samsung and Xiaomi decided to set up manufacturing operations in Indonesia. Back in 2015–2017, companies like these worked with local partners like Sat Nusapersada to meet the minimum TKDN thresholds. Without the requirement in place, it is unlikely such partnerships would have been formed.

In effect, relaxing the TKDN would likely favor new entrants and foreign investors at the potential cost of existing players in the market. For the Prabowo Subianto administration, the interest in tweaking the rule appears largely tied to its goal of drawing more capital into fast-growing industries like data centers and digital infrastructure.

The discussion around TKDN reform is also closely linked to Indonesia's larger ambition of becoming a leading hub for green data centers in Southeast Asia. As major tech companies face pressure to decarbonize their operations, the demand for sustainable digital infrastructure is increasing. Indonesia sees this as a key opportunity.

Singapore, currently the region's dominant data center market, is limited by land scarcity and must rely on imported renewable energy to maintain green operations. Indonesia, by contrast, has a natural advantage thanks to its abundant renewable resources. Minister Airlangga has said that Indonesia could become a "green digital gateway" for the region by capitalizing on these strengths.

In addition to revisiting the TKDN, the government is also considering other moves to improve relations with the US. One idea on the table is to boost Indonesia's crude oil and LPG import quota from the US. The Energy and Mineral Resources Ministry estimates the plan could amount to Rp 167.73 trillion (US$10 billion). According to energy minister Bahlil Lahadalia, since Indonesia currently runs a trade surplus of $14.6 billion, the additional imports would help balance its trade account. At the same time, the country could replenish its energy reserves and deepen its economic ties with Washington. (Read: US tariffs present challenges, opportunities for Indonesia)