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Indonesia's strategy in rising US-China trade tensions
Let us begin by understanding the main issue that the US economy faces.
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Shipping containers are seen at a port in Qingdao, in China's eastern Shandong province on April 13, 2018. (AFP/-)
W
hile uncertainty persists amid escalating tensions in United States-China trade, Indonesia will remain neutral and maintain positive engagement.
Let us begin by understanding the main issue that the US economy faces. The US economy has been facing “twin deficits” of budget and trade. In Q4-2017, the US recorded a budget deficit of 3.4 percent of gross domestic product (GDP) and a current account deficit of 2.1 percent of GDP. With the current scenario of tax cuts and budget spending, JP Morgan estimates the US budget deficit will reach 5.4 percent of GDP in 2019.
On the monetary front, the US is projected to increase its 10-year bond interest rate to 3.25 percent by year-end. As of July 5, it reached 2.86 percent. The hike is expected to boost Federal Reserve interest rates, which would result in a strengthened dollar against the world’s major currencies.
On the real sector front, ideally, the US should go through the long painful process of improving its productivity and labor skills, by all means “working and learning harder and saving more”. Productivity is not everything, but in the long run it is almost everything (Paul Krugman, 1994).
