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Latest trade spat could hurt Indonesia
As trade tensions escalate following the United States’ fresh tariffs against Chinese goods, the Indonesian government should maintain domestic stability and explore new export destinations to avoid a trade deficit, analysts and businesspeople have said
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s trade tensions escalate following the United States’ fresh tariffs against Chinese goods, the Indonesian government should maintain domestic stability and explore new export destinations to avoid a trade deficit, analysts and businesspeople have said.
In his latest move, US President Donald Trump ordered the US Trade Representatives (USTR) on Monday local time to identify Chinese goods worth US$200 billion that would be imposed an additional 10 percent tariff.
China’s Ministry of Commerce has vowed to retaliate, promising “comprehensive and qualitative measures” to counter the US’ move, Bloomberg reported.
Indonesian Employers Association (Apindo) public policy chairman Sutrisno Iwantono said Indonesia may take the hit amid the spat between the world’s two largest economies.
“Protectionism in the US and China could put pressure on global commodity prices, including commodities exported by Indonesia, as it would flood the global market [as a consequence of the protectionist moves],” he said.
As the US and China are among Indonesia’s main trading partners, disruption in the two economies may impact Indonesian exports and aggravate the country’s trade balance, Sutrisno said.
He urged the government to maintain the public’s confidence toward domestic economic stability and diversify export products and destinations to anticipate fallout from the trade spat.
Eric Sugandi, an economic observer at the Asian Development Bank (ADB) Institute, said Indonesia’s trade deficit may widen if a global scale trade war broke out between the US and China, as both countries were Indonesia’s primary trading partners.
“[The trade tension] could incur risk of a widened trade deficit as Indonesia’s exports to China could weaken if the latter’s economic growth slowed down, coupled with possibilities that Chinese goods, such as steel and iron, could flood the Indonesian market,” he said.
University of Indonesia economist Fithra Faisal Hastiadi said the heightening tensions between the US and China could translate into upward pressure on the interest rate equilibrium in the long run as China, currently the largest US bondholder, also gave signals that it would end its US bond purchases as a retaliatory
measure.
“Thus, the cost of financing could soar so that it would put pressure toward the fundamentals of publicly listed corporations,” he said.
Separately, Coordinating Economic Minister Darmin Nasution previously said trade tensions had “pluses and minuses” for the Indonesian economy.
As the US levies tariffs on Chinese goods, Darmin said Indonesia could use the opportunity to fill the gap in the US market.
“The trade tensions are not all bad news because we could also produce goods that are produced by China. We could gain [in the US market] as tariffs for our exported goods are lower [than those of China’s],” he said.
Institute for Development of Economics and Finance (Indef) economist Bhima Yudhistira Adhinegara said the escalated tensions would further strain the rupiah, which had struggled to bounce back after a rout in the global market driven by the US Federal Reserve’s first interest rate hike in March.
“Pressure on the rupiah will continue as trade war risks cause a spillover to other countries. [Bank Indonesia’s] steps to stabilize the rupiah by increasing the seven-day reverse repo rate was a hefty price to pay as it may also increase banks’ credit interest, which has implications for loan growth and the real sector,” he said.
