Textile Factory - Photo by PT Sri Rejeki Isman

JAKARTA (TheInsiderStories) – Moody’s Investors Service rated that the United States (US) – China trade dispute could lead to an influx of Chinese yarn, fabric and garments into Indonesia. It said, potentially disrupting the so far stable levels of demand and supply in Indonesia by pushing up supply, which would in turn depress prices and hurt local manufacturers.

Moody’s explains that tariffs imposed by the US on Chinese textile exports are at 25 percent versus the 10 – 15 percent that Indonesia has implemented.

“The Indonesian textile companies that we rate are not immune to the dumping of Chinese textile products in Indonesia, should it occur,” says Stephanie Cheong, a Moody’s Analyst in the latest report.

She continued, “Nevertheless, these companies’ credit profiles should stay stable over the next 12-18 months, because exports account for a high portion of their total sales, and because they maintain long-standing customer relationships and produce a strong range of value-added products that are not easily replaced by imported manufactures.”

Moody’s points out that while there are fears that Chinese companies will redirect their textile products to Southeast Asia, including Indonesia, initial trade data estimates published by Bank Indonesia for the six months between January and June 2019 show that the year-over-year value of imports and exports has broadly held steady.

The Advisory Council of the Indonesian Employers Association Sofjan Wanandi said President Donald Trump has already delivered a warning for Indonesia and plans to withdraw the country’ special treatment in trade. The US leader’ threat in order to prevent the US from flooding Indonesia’s goods.

“He (Trump) offhanded, including to us (Indonesia). Trump has given us a warning and we talk to him about some rules about the special tariff treatment the country gives to us, especially for the textile,” he said.

Trump’ threat to Indonesia’ textile companies listed on the Indonesia Stock Exchange (IDX) such as PT Sri Reject Isman (IDX: SRIL), PT Eratex Djaya Tbk (IDX: ERTX), PT Panasia Into Resources (IDX: HDTX), and PT Indo-Rama Synthetics (IDX: INDR).

Wanandi give advises to Indonesia’ businessman to remain vigilant and focus on their business. He also requested that entrepreneurs in general not be too worried, because the impact of a feared commercial war will not immediately, but afterward.

The Trump’ threat over Indonesia is reasonable as the country recorded deficit in trade balance with Indonesia. In 2017, Indonesia booked US$9.59 billion trade surplus with the US.

The trade war potentially shifted the exports of the two countries to Indonesia. China potentially shifts the steel and aluminum exports to Indonesia, while the US will seek the new markets for fruits and soybeans.

The condition will worsen Indonesia’s trade deficit. According to the Central Statistics Agency data, Indonesia booked US$13.89 billion deficit in non-oil and gas trade balance deficit to China. Indonesia recorded US$21.32 billion in export to China, lower than the import from the country of US$35.51 billion.

In addition, the trade war potentially reduce the volume of the global trade that will hurt Indonesia’s export-oriented industries including palm oil, rubber, textile, food and beverage, and electronics. As a result, it will worsen the country’s trade deficit.

Furthermore, the trade war will exacerbate the rupiah exchange rate against the US dollar as the investors shift to the developed countries currencies. The weakening Rupiah simultaneously increases imported raw material that will cause higher production cost. Not only hurt the local industries’ competitiveness, it also potentially harms the people’s purchasing power.

Given the implication of a full-blown trade war could be extensive, the government does not seem to have definite anticipatory measures to minimize its impact.

Written by Staff Editor, Email: theinsiderstories@gmail.com