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he United States and China are racing against time to resolve their trade dispute before the March 2 deadline. The US increased tariffs on its Chinese steel and aluminum on March 9, 2018, but an agreement remains elusive.

It is estimated that if the US implements duties as threatened, the average tariff on American imports will rise by 3.4 percent and companies will pass these costs onto customers. Many US economists have warned that, in the end, American producers and customers will bear the costs. A 2017 study by Warwick McKibbin estimates that the policy will lower US gross domestic product by 1.2 percent.

As things develop, however, the US tariff barriers hardly reduce its deficits vis-à-vis China. The US International Trade Commission found the US trade deficit reached US$375 billion in 2017, while between January and October 2018, the deficit hit $345 billion, up 10 percent year-on-year.

The tension is not limited to tariffs. Many have noted that even if the US and China strike a deal on tariffs, the conflict will spread to the fields of technology, intellectual property rights, industrial subsidies, e-commerce and other trade and investment issues, or even to the issue of world hegemony.

The impact of the US-China “trade war” has been felt. In 2018, Chinese investment in Europe and the US dropped 73 percent and the global value of cross-border investment by multinational companies sank by about 20 percent.

World growth is expected to slow at an average of 3.7 percent from this year to 2021, and if the tensions go unsettled, the pace will linger at 3.6 percent from 2022 to 2025.

So, how has this affected Indonesia’s trade and investment and what has Indonesia done to cope with these challenges?

Indonesia recorded a trade deficit of $8.6 billion last year. Its exports stood at $180 billion and imports at $188.6 billion. If we look at the details, we can find the following:

First, the components of imports were largely intermediate and capital goods, which comprised 92 percent of Indonesia’s imports. Imports of bulldozers, cranes, steel and aluminum increased significantly. Imports of intermediate goods and capital goods climbed 24 percent and 21 percent, respectively.

Second, in terms of the value and volume of our exports, despite the rising trade tensions and lower global demand, Indonesia still increased its exports. The value increased 7 percent year-on-year to $180 billion in 2018. The volume jumped even higher, by 10 percent, from 546 billion kilograms in 2017 to 609 billion kg in 2018, while world trade volume grew only 4.4 percent.

In the same year, Indonesia’s total investment grew 4 percent, which is not much but outstripped global investment, which contracted by 20 percent. Indonesia’s total investment soared to Rp 721 trillion (US$51.65 billion) last year from Rp 692 trillion in 2017.

Indonesia’s strategy is very clear. President Joko “Jokowi” Widodo has said the engines to realize the target of 5.3 percent economic growth in the next three years are exports and investment.

On investment, according to the 2016 negative investment list, Indonesia allowed 45 business lines to become more open to foreign investment. This was most visible in retail, tourism and the creative economy, transportation, communications and IT, nonformal education, medicine, hospitals, power, construction and banking.

Indonesia is in the process of revising the list, with the goal to become more open to foreign investment, enable domestic investment to grow and facilitate small and medium enterprises to grow. On top of this, Indonesia is committed to continuing to develop infrastructure, which is the best way to support the development of all sectors.

On trade, Indonesia will continue its reform agenda to lower tariffs on capital goods and streamline export and import licensing. At the same time, it will continue to work with existing trade partners and expand exports to nontraditional markets while engaging in as many trade agreements as possible.

Indonesia recently concluded trade agreements with Chile (Indonesia-Chile Comprehensive Economic Partnership Agreement), Australia (Indonesia-Australia CEPA) and the EFTA countries of Switzerland, Iceland, Liechtenstein and Norway (Indonesia-EFTA CEPA). Indonesia is currently engaging with the EU and 16 East Asian countries in the Regional Comprehensive Economic Partnership while simultaneously engaging with Turkey, Palestine, Tunisia and Morocco; and soon, Indonesia will relaunch the Indonesia-South Korea CEPA.

In short, despite the rising trade tensions and lower global demand, the Indonesian economy did relatively well last year.

Indonesia might only be a trillion-dollar economy today, but it will be the fourth-largest economy by 2050 when 50 percent of the population is at a productive age. Indonesia is definitely a promising investment destination.

Moreover, today, Indonesia has a very clear stance on trade. It is against any punitive unilateral actions. Indonesia has vowed to manage its openness and uphold “fair and non discriminatory treatment” to all countries, and expects its trading partners to follow suit.

The current trade tensions create opportunities for Indonesia in the short run, but in the long run, it will lower global demand and investment, which is not good for everyone.