US-CHINA TRADE WAR IMPACT ON INDONESIA

Desi Yuliana | IMBA | 107077427

Abstract: Started in March 22 2018 until now, US-Sino trade war has been going on for months of
attack and retaliation from both sides. The prediction is solid, when two giants at trade war, global
economy having a 1% set back, if it continues, it can cause global economy setback for 10% or
more. Although US is not the center of global system anymore, still countries which have a more
dominant trade relationship with the giants need to evaluate its position and rearrange their
strategy and find new equilibrium. Indonesia starting to be the victim of dumping product due to
abundant of products that cannot enter its former market. Indonesia currency also affected because
of global economy slowdown. But, in the other hand, it opens up opportunity for Foreign Direct
Investment (FDI) from both China and US, also an increase demand for certain Indonesia’s
products needed by both countries to fill in the gap caused by trade war.

INTRODUCTION
The Trade war between US and China triggered first on March 22, 2018 by US placing a tariff
worth $50 billion on Chinese goods import. This led to sequential tariff imposing exchanges
between China and US until the latest one on May 5th, 2019. There are three issues are addressed
by US government in justifying this new tariff; Intellectual Property Right (IPR) violation, outward
investment and industrial subsidies, and Cyber-Espionage. This trade-war started by US requesting
for consultation to the World Trade Organization (WTO) concerning China violating IPR by
forcing foreign company to engage in joint ventures with Chinese companies which enabling
Chinese companies to use, improve, copy, or steal their technology. The second issue is related to
outward investment strategy in which US accused China’s company investing in companies
globally in order to do merger and acquisitions. The last one is the cyberespionage on the
commercial domain which according to a senior US causing imbalance and unfair bilateral trade
due to employing the non-market practice.

TRADE RELATIONSHIP BETWEEN INDONESIA AND US OR CHINA

Indonesia has been one of top 10 trade partner with US and China. The top export destinations of
Indonesia are China ($25.8 billion), United State ($19.9 billion), and Japan ($19 billion). While
the top import origins of Indonesia are China (34.3 billion), Singapore ($17.9 billion), and Japan
($13.5 billion). 92% of Indonesia import consist of intermediate and capital goods such as
bulldozers, cranes, steels and aluminums, which reaching $154 billion in 2017. In the other hand,
according to OEC (2017) Indonesia export mainly Coal Briquettes (10%), Palm oil (9.6%), Rubber
(3.0%), crude petroleum (2.8%), cars (1.8%), and other things, and accumulated value at $189
billion in 2017. The top export goods from Indonesia to China are Lignite (11%), Coal Briquettes
(10%), Palm oil (8.1%), Sulfate Chemical (6.2%), and Ferroalloys (5.0%), while in exchange
Indonesia import several goods from China such as Telephone (5.5%), Computer (3.2%),
Broadcasting equipment (2.1%), and Onion (1.7%). Indonesia export Rubber (5.9%), Crustaceans
(4.9%), Knit Sweaters (4.5%), and Crude Petroleum (3.5%) to US with total value $19.9 billion,
while in exchange Indonesia import Soybeans (14%), Raw Cotton (6.6%), Petroleum Gas (4.8%),
Wheat (3.9%), and Starch Residue (3.7%) with total value $7.58 billion (see Table 1).

Table 1. Top 5 Indonesia Export and Import Record

N Export to China Import from China Export to USA (%) Import from USA (%)
o (%) (%)

1 Lignite 11 Telephone 5.5 Rubber 5.9 Soybeans 14

2 Coal 10 Computer 3.2 Crustaceans 4.9 Raw Cotton 6.6

Briquettes

3 Palm Oil 8.1 Broadcasting 2.1 Knit 4.5 Petroleum Gas 4.8
Equipment

4 Sulfate 6.2 Onion 1.7 Rubber Tires 4.0 Wheat 3.9

Chemical

5 Ferroalloys 5.5 Synthetic 1.5 Crude 3.5 Starch Residue 3.7

Filament Petroleum
Yarn Woven
Fabric
EXPORT INCREASING DESPITE THE TRADE WAR
The Trade war that started in 2018 causing China and US experiencing economic slowdown which
supposedly decrease their demand for Indonesia’s goods and service. Although, in the other hand,
US trade restriction targeting for China is not as harmful as before since US is not dominating
world global system anymore, but it still affecting 1% of global economy, including Indonesia.
According to OCB (2018) analysis, although Indonesia market is not as open market as Malaysia
and Singapore, but Indonesia has 18.1% of its trade are heavily connected with China. Therefore,
it is logical to accept the premise of OCB which says that based on export and Import exposure of
Indonesia to China and US, Indonesia’s export of machinery, coal, rubber, palm, oil, iron & steel
most likely deteriorated by this US-Sino trade war.

But, in contrary, according to The Jakarta Post (2018) still Indonesia coined 7% value increase in
year-on-year export to $180 billion in 2018, performing better than average world trade growth
which only at 4.4%. From the investment wise, Indonesia total investment grew 4%. This is
because of several strategy implemented by Indonesia current government such as diversifying its
economic structure by engaging with as many trade agreements as possible such as Indonesia-
Chile Comprehensive Economic Partnership Agreement, Indonesia-EFTA CEPA (Australia,
Switzerland, Iceland, etc.). Indonesia also allowed 45 business lines to become more open for
foreign investment such as retail, tourism, creative economy, transportation, and so on. This way
Indonesia still able to record a good export and import activity, despite the odds of global demand
decreasing. But the trade war is only good for Indonesia in the short-rung scheme, while in the
long run, it is not good for everyone.

The gap that happen because trade-war help country which is not involved to filling the shortage
of goods. This is an opportunity for Indonesia to maximize its export as the goods streaming in
and out of China as well as US is still trying to find its equilibrium point. Besides, the Free Trade
Agreement between ASEAN and China open more opportunity for both countries to ease the
constraint causing by trade war. We can see for example the Indonesia export of iron and steel to
the US jumped 87.7% year-over-year in the January through November period of 2018. And, in
total, Indonesia export grew 3% than year before.
TARGET MARKET FOR DUMPING
The trade war can also increase the chance for certain product that Indonesia does not have
adequate regulation or institution support to filter such product. For example, the Polyethylene
terephthalate (PET), plastic bottles raw material, which Indonesia still not yet imposed the
antidumping law toward China’s product, while Malaysia, South Korea, and Pakistan have already
imposed them few years back. The protection risen on other country causing the increase of PET
import to Indonesia by 131% between 2013 and 2016, causing domestic producer suffer the
damage. This happen, according to Rahadian (2018) because of ineffective work of regulators such
as Indonesian Trade Protection Committee (KPPI) in adressing the issue with investigation and
other strategies possible. Besides PET, metal import from China can also dumped to regional
market including Indonesia, because of the metal duties imposed by US (OCBC, 2018).

FOREIGN DIRECT INVESTMENT OPPORTUNITY

Since President Joko Widodo or
Jokowi assumed power in 2014,
he has been focusing most of his
energy in increasing the Foreign
Direct Investment as part of his
7% economic growth target.
Under his leadership, Indonesia
has steady increase in FDI from
only around IDR 75 trillion in Fig 1. Indonesia Foreign Direct Investment (2010 - 2019). Source:
Tradingeconomics.com | Investment Coordinating Board of Indonesia
2014 to IDR 107 trillion in 2019.
Although opposed by many opposition parties and critique, he keeps moving forward with the
vision. To achieve his target, Jokowi for 4 years has been pushing the infrastructure agenda such
as building road, ports, airport, and bridges, improving the index of ease of doing business (from
120 in 2014 improved to 73 in 2018), improving the quality of Indonesia export by increasing
value-added, and other strategies.

The conflict between the world’s two largest economies, despite all trouble that follows, is in favor
of Jokowi’s vision, because it would push companies to speed up plans to move parts of their
supply chains from China to country such as Indonesia. The same also happen to US investor. This
trade war opens their eyes to find alternative for investment, and Indonesia has many possibilities
because of its characteristic such as having a 50% of population are in their productive-age, huge
population, stable in economic and politic.

Besides, it is in line with government plan to

increase investment in Indonesia where since
2014 as Jokowi elected as the president of
Indonesia, he has been trying to make Indonesia
more appealing for foreign direct investment.
There are three industry block that opens for
government to invest in Indonesia; first block
iron and steel, second petrochemical (crude oil,
gas, and coal), and third one basic chemical
industry (pharmacy).

The chance for Indonesia to be one of the FDI are

even bigger considering Indonesia is among the
most potential candidates which more appealing Fig. 2. ASEAN-5 Competitiveness as FDI
Destination
than other countries in the region such as
Thailand or Vietnam.

From fig.2 we can see that from 2015 to 2018 Indonesia able to maintain its position as the second
most competitive for Japan FDI destination (Mizuho Research Institute, 2018). Not only because
Indonesia is considered as one of the countries with the highest democracy index at 6.39 in 2018
(The Economist), 50% productive age workforce, high ease of doing business condition,
infrastructure on the fast progress of getting better and more suitable for industries, vast domestic
market, suitable geographical location, and so on.
REFERENCES
Anya, Agnes. (2018, October 25). US-China Trade War May Benefit RI: Analyst. Retrieved on 12
May 2019 from The Jakarta Post https://www.thejakartapost.com/news/2018/10/25/us-
china-trade-war-may-benefit-ri-analyst.html

Atlas Media. (2017). The Observatory of Economic Complexity. Retrieved on 10 May 2019 from
https://atlas.media.mit.edu/en/visualize/tree_map/hs92/export/idn/all/show/2017/

Black, Jeffrey., Pi, Xiaoqing. (2019, May 15). Chinas’s Economy Lost Momentum Even Ahead of
Trump’s New Tariffs. Retrieved on 15 May 2019 from Bloomberg
https://www.bloomberg.com/news/articles/2019-05-15/china-s-economy-lost-
momentum-even-ahead-of-trump-s-new-tariffs

CFR. (2019). U.S. Relations with China. Retrieved on 10 May 2019 from
https://www.cfr.org/timeline/us-relations-china

Diela, Tabita., Potkin, Fanny. (2019, January 8). The U.S.-China Trade War an Opportunity for
Indonesia. Retrieved on 12 May 2019 from Reuters https://www.reuters.com/article/us-
indonesia-tradewar-idUSKCN1P21I1

Ing, Lili Yan., Vadila, Yessi. (2019, February 6). Insight: US-China Trade War has done Indonesia
More Good than Harm. Retrieved on 11 May 2019 from The Jakarta Post
https://www.thejakartapost.com/news/2019/02/06/insight-us-china-trade-war-has-done-
indonesia-more-good-harm.html

Lee, Yen Nee. (2019, January 22). Indonesia has Benefited from the US-China Trade War,
Minister Says. Retrieved from 11 May 2019 from CNBC
https://www.cnbc.com/2019/01/23/trade-war-indonesia-industry-minister-airlangga-
hartarto-on-benefits.html

Lu, Zhenhua. (2018, April 13). US Official Accuses China of ‘Industrial Cyber Spying’ Amid
Looming Trade War. Retreived on 11 May 2019 from South China Morning Post
https://www.scmp.com/news/china/article/2141525/us-official-accuses-china-industrial-
cyber-spying-amid-looming-trade-war

Mak, Liz. (2016, January 24). Chinese Companies Well Positioned To Fulfil ‘Going Out’ Strategy
Amid Continuing Global M&A Boom. Retrieved on 13 May 2019 from South China
Morning Post https://www.scmp.com/business/banking-finance/article/1903703/chinese-
companies-well-positioned-fulfil-going-out-strategy

OCBC Bank. (2018, July). Trade Tariffs and Its Impact on ASEAN. Treasury Research & Strategy,
1–32. Retrieved on 10 May 2019 from OCBC Bank Online.

Okada, Yutaka. (2018, July 25). Mizuho Economic Outlook & Analysis. Mizuho Research Institute,
11. Retrieved on 10 May 2019 from https://www.mizuho-
ri.co.jp/publication/research/pdf/eo/MEA180913.pdf
Rahadian, Andre. (2018, August 10). How Should Indonesia Handle Trade Wars?. Retrieved on
11 May 2019 from The Jakarta Post
https://www.thejakartapost.com/academia/2018/08/10/how-should-indonesia-handle-
trade-wars.html

Roach, Stephen. (2018, April 26). Why the US has a Weak Case Againts China’s ‘Unfair’ Trade
Practices. Retrieved on 13 May 2019 from South China Morning Post
https://www.scmp.com/comment/insight-opinion/article/2143496/why-us-has-weak-case-
against-chinas-unfair-trade-practices

The Economist Intelligence Unit (2019, January 8). Democracy Index 2018: Me Too?. Retrieved
on 16 May 2019 from http://www.eiu.com/home.aspx.