Jakarta braced Trump trade war

Indonesia is set to put in place counter-measures to mitigate a potential trade war between the US and China, which has hit investor confidence and weakened the rupiah.

Jakarta pledged to bolster the archipelago’s industries, curb raw material import demands and boost tourism by encouraging budget airlines and renovating airports.

President Joko Widodo has also requested ministers study the production of 30-per-cent biodiesel blending because the upgrade from 20-per-cent blending would increase the use of biodiesel by 500,000 tonnes per year, reducing dependency on imports.

The expansion of the commodity for domestic use was needed due to the increasingly hostile policies towards palm oil products from the European Union, the president reportedly said.

“Everyone sees that the problem is the uncertainty itself from the policy side. What we can do now is to mitigate, to minimise risks faced by industries,” Finance Minister Mulyani Indrawati said.

Widodo held a ministerial meeting after Donald Trump last Friday imposed 25-per-cent tariffs on US$34 billion worth of China’s exports. Beijing said it was “the largest trade war in economic history” and enforced retaliatory measures on US$34 billion on US produce.

China had reportedly deliberately let the yuan weaken to prepare for Trump’s move, currency analysts said.

In recent weeks the People’s Bank of China pushed the yuan lower against the US dollar in an apparent attempt to fend off Trump’s tariffs. The weak yuan reduces the cost of Chinese exports but could hurt Asean economies by affecting China’s ability to buy raw materials.

Indonesia’s Industry Minister Airlangga Hartarto said the authorities would give incentives to manufacturers willing to move their operations from industrialised West Java to less densely populated provinces like Central Java, where labour and land costs were lower.

Java, the island on which Jakarta is located, has about 60 per cent of Indonesia’s population of roughly 250 million, while making up just 7 per cent of its territory.

Airlangga said tourism would be targeted to drive economic growth.

Last year, Trump called for a probe into alleged trade imbalances with trading partners, including Indonesia.

Airlangga said it was unlikely Trump would target Indonesia, which was low on the list of countries with which United States had a trade deficit.

In the first five months of 2018, Washington recorded US$5.75 billion in deficit with Indonesia, compared with US$13.35 billion for the whole of 2017.

The US is a significant market for Indonesian goods, with non-oil and gas exports accounting for 11 per cent of exports in the first quarter, second only to China.


Indonesia’s two largest trade partners are the US and China. Picture credit: Wikimedia