Measuring Indonesian Govt’s Strategies to Counter Trade War

JAKARTA (TheInsiderStories)—The Indonesian government announced eight strategies to counter the trade war, is this effective?

The trade war‘s threat imposed by the United States will eventually affect Indonesia. The US government is evaluating the existence of a generalized system of preference (GSP) given to products from Indonesia. Following a trade deficit with Indonesia, the US President Donald Trump threatened to impose a 124th tariff on Indonesian products.

In 2017, Indonesia booked US$9.59 billion trade surpluses with the US.

GSP is a US platform to provide import duty exemption for exporters from developing countries. In 2011 Indonesia is one of the five countries that enjoy the greatest benefits of this GSP together with India, Thailand, Brazil, and South Africa.

Since April, the United States has been reconsidering the provision of the facility to Indonesia and India, especially with market access of American goods had been restricted in the two countries.

Senior Advisor to Indonesia’s Vice President Sofjan Wanandi said that a removal from the GSP list would cost Indonesian exporters at least $1.8 billion in additional tariffs.

In order to tackle the trade war’s threat, Indonesian government held a special meeting at Bogor Palace on Monday (9/7) to seek strategies for strengthening national economy, while ensuring Industries that Indonesia’s investment climate can be maintained, Industry Minister Airlangga Hartarto said.

Hartarto said the Indonesian government has designed eight strategies to respond to the trade war threat. First is fiscal revenue optimization by applying export duties and import duties in order to improve industries competitiveness.

In addition, the government ensures the availability of raw materials and incentives for the industries to encourage exports. Furthermore, the government also will give incentives for industries seeking to relocate its factories from the labor-intensive area such as West Java to the other areas such as Central Java.

The government also commits to provide incentives for the small medium enterprises (SMEs) in furniture sectors to boost export, such as by subsidizing Timber Legality Verification System (SVLK).

In addition, the government will improve the domestic content level for industrial utilization in order to meet the availability of raw materials including petrochemical and fuel corporations in Tuban.

Furthermore, the government will boost the using of biodiesel in order to increase the consumption of crude palm oil by 500,000 tons per year. Last, the government will maximize the tourism by developing low-cost carrier (LCC).

However, the strategies are more general in view of the nation’s persistent trade deficit and not specific measures to respond to the threat of trade war. Indonesia booked US$2.83 billion in deficit trade balance from January to May 2018.

The eight strategies are right on the target but it is ineffective to tackle trade war as it takes a long time to be implemented, while the trade war is near at hand. In addition to those long-term strategies, Indonesia needs to arrange short-term strategies to tackle trade war in the near future. One of the best strategy is mapping the alternative market for Indonesian consumer goods through the trade agreement. The country could broaden its market to Africa and the Middle East, which is currently not widely reached.

If the Indonesian government pushes the eight strategies in advance, the country could minimize the impact of the trade war.