Indonesia Scrambles to Mitigate Trade War With US

He said Indonesia should establish a free-trade arrangement with the United States to ensure that country cannot withdraw its trade facilities as it wishes. That way, Indonesian exports can also easily enter the United States and be more competitive as it will not be subject to tariffs, he said.

According to the Trade Ministry, there are plans to finalize six free-trade agreements or comprehensive economic partnership agreements this year. They include the RCEP, Indonesia-Australia Comprehensive Economic Partnership Agreement, Indonesia-European Free-Trade Association, Indonesia-EU Comprehensive Economic Partnership Agreement, Indonesia-Iran Preferential Trade Agreement and Indonesia-Malaysia Border-Trade Agreement.

Steel Spillover

The world’s two largest economies kicked off a trade war two weeks ago with the United States imposing punitive tariffs of 25 percent on $34 billion worth of Chinese imports, which prompted the latter to immediately retaliate. The United States wants to reduce its trade deficit with China after it hit a record high of $275.81 billion in 2017.

The United States imposed import tariffs on several Chinese products, including steel and aluminum, which could spill over to other countries, such as Indonesia. The archipelago forms part of a free-trade arrangement between the Association of Southeast Asian Nations (Asean) and China, which commenced in 2010.

Indonesian steel imports rose 33 percent to $4.7 billion in the first half of this year, compared with the same period a year ago.

But Hidayat Triseputro, executive director of the Indonesian Iron and Steel Industry Association (IISIA), said between 25 percent and 30 percent of the steel imports are the result of dumping, making it very difficult for local producers to compete.

Indonesia produced 4.8 million metric tons of the alloy last year, according to World Steel Association data. This is a tiny amount compared with the 831.7 million tons by China, the world’s largest steel producer.

Still, domestic production should be enough to cover 90 percent of Indonesian steel demand.

“Imports dominate up to 40 percent of our market… That’s why we want to tighten imports; there must be detailed data to screen them,” Hidayat said.

However, what happens with the steel industry could soon befall other industries. The International Monetary Fund has warned that a trade war between the United States and other countries could cost the global economy $430 billion and risk lowering global growth by 0.5 percent by 2020.

“This is potentially very, very bad, if not bordering on something catastrophic. The world economy has finally recovered from the impact of the 2008-09 global financial crisis … and now we’re running into a situation that could have a potentially devastating and deadening effect on global trade,” said Clague of the Economist Intelligence Unit.