Monitoring Opportunities Amid US And Chinese Trade Wars

JAKARTA The United States under the Donald Trump administration began imposing tariff increases on all imports of trade products from Canada and Mexico by 25 percent, and from China by 10 percent as of February 1. This is said to have triggered a trade war between two superpowers in the economic sector, namely the US and China.

The decision Trump made was not surprising. Because during the campaign period, Trump had threatened to increase trading rates, not only to ensure the cooperation of countries charged with tariffs to stop illegal immigration and the smuggling of hazardous chemicals to produce fentanyl, but at the same time to encourage domestic manufacturing and increase federal government revenue.

Sure enough, the three countries did not waste time responding to Trump's tariff announcement. Canada reacted first by announcing a 25 percent tariff on American products which ultimately amounted to 155 billion Canadian dollars. This reaction was welcomed by several Canadian provinces by taking additional steps. The Prime Minister of Ontario and British Columbia have asked provincial outlets that import alcoholic beverages to stop buying supplies in states ruled by Republicans or in any US state in the Ontario case

Likewise with China. China's Ministry of Trade said Beijing would take appropriate countermeasures to firmly protect its rights and interests. China's Ministry of Foreign Affairs said that there were no winners in the trade war or tariff war and reported to the World Trade Organization (WTO). The Chinese government's strong reaction was proven by setting a 10 percent tariff on oil imports and agricultural equipment from the US and 15 percent against coal imports and liquefied natural gas (LNG) from the US.

So what is the impact of the trade wars between the two countries for Indonesia? Executive Director of the Center of Reform on Economics (CORE) Indonesia, Muhammad Faisal revealed that Indonesia's new government under Prabowo Subianto will also be affected by Trump's tariff policy. If this tariff does not run well or has a bad impact on many countries in the world, then the Indonesian economy has the potential to be affected and will experience difficulties.

This is because Indonesia's exports to China and those directly to the US will become increasingly expensive. For the record, Indonesia's exports to the US jumped 15.3 percent in the Trump era from US$16.14 billion in 2016 to US$18.62 billion at the end of 2020. This increase was higher than the last four years of Barack Obama era, which only rose 8.52 percent.

If goods exported by Indonesia to China, the US, and other countries become more expensive, then Indonesian goods have the potential to not sell well in the international market and one way to anticipate this is by devaluating the rupiah exchange rate. But if this is done, companies in Indonesia that have debts in the form of US dollars will be even more burdened and exacerbated the company's balance sheet, "explained Faisal, Monday, March 24, 2025

Seeing Trump's first era of leadership in 2017-2020, the number of Direct Foreign Investments (FDI) from the US to Indonesia was observed to continue to decline compared to Joe Biden's era. US companies may focus more on the domestic market, reducing investment in developing countries such as Indonesia. Data from the Investment Coordinating Board (BKPM) shows that the realization of foreign investment investment (PMA) from US to Indonesia decreased from 2017 to 2020 (Trump's leadership period). In 2017, the realization of PMA investment from the US was US$1.99 billion, then consistently decreased every year and only US$0.75 billion in 2020.

"If this happens again during the second Trump administration, it is feared that regional and national economic growth will be increasingly difficult in terms of infrastructure, employment, and technology transfer," added Faisal.

According to him, there are several strategic steps that the Prabowo Subianto administration can take in anticipation of the impact of the US and Chinese trade wars. First, the government must first identify what products it can purchase (imported) from the United States. Second, if there are not many products that can be imported, the government can mobilize the private sector in Indonesia for investment in the United States because of course there will be many regulations regulated by Trump, including tax deductions or other facilities, to attract investors from outside the United States.

Cooperation with the US under Trump now has the standard that any money or facility provided will make the country safer, more prosperous and stronger," he explained. So how can every collaboration made with the US be 'packed' with the frame that it will also benefit them, not just providing free aid from the US, "said Faisal.

In addition, the government must also be able to diversify the Indonesian product market, not only focusing on the United States but also on other developed countries that have been less priority, such as G7 member countries, BRICS, or the European Union. We should not diversify the random market, but to developed countries whose middle class is equal or even bigger than the US," he said.

Filling In Market Vacancies

Executive Director of the Institute for Development of Economics and Finance (Indef), Esther Sri Astuti, said that the first impact of the US and Chinese trade wars that was immediately felt for Indonesia was the uncertainty of the global market. Indonesian exports, especially commodities such as rubber, palm oil and textiles, will face pressure due to the weakening demand from the two countries. So far, the US and China are two of Indonesia's five largest trading partner.

When they are busy hitting each other at high rates, the global supply chain is also shaken. Goods that usually flow freely are now hampered by tariff barriers and new regulations. As a result, Indonesian exporters will feel the impact of slowing global trade," he said.

But when viewed more deeply, the trade war also opens a window of opportunity for Indonesia to fill the market vacuum left by the two countries. For example, agricultural and manufacturing products that are usually exported by China to the US are now facing high rates. This is where Indonesia can enter as an alternative supplier. Products such as textiles, footwear, and light electronics have a great opportunity to seize the US market which is looking for new sources outside China. Likewise, goods previously imported by China from the US can now be replaced by Indonesian products, especially in agricultural sectors such as soybeans and corn.

Indonesia can take advantage of this opportunity, especially for electronic products. However, it will only be realized if Indonesia is able to increase product competitiveness. This means that Indonesia must be able to reduce production costs and product prices in order to fill the vacancies in the US market left by China. In addition, multilateral agreements are also very crucial to expand the international trade network. Otherwise, Indonesia will only be a spectator in this global competition," explained Esther.

He said, there are other opportunities that the Indonesian government can take advantage of, namely investment relocation. This is because it is estimated that many multinational companies that were previously based in China are starting to consider moving their factories to other countries to avoid US tariffs. Based on the experience of the US and Chinese trade wars that occurred in 2019, Vietnam became one of the most profitable countries.

By taking advantage of the geographical closeness and the large number of trade agreements, Vietnam is predicted to return to being the goal of transiting Chinese products towards the US market. Vietnam did become a star in attracting this investment, but Indonesia with a large domestic market, abundant labor, and the potential for rich natural resources also had the same opportunity.

Unfortunately, challenges such as complicated bureaucracy, uneven infrastructure, and often questioned legal certainty have made Indonesia unable to fully take advantage of this opportunity. This is where the importance of smart and responsive policies. The Indonesian government needs to move quickly with structural reforms that support ease of doing business, "said Esther.

He also emphasized the importance of domestic economic diversification. The government must make the US and Chinese trade wars a momentum to encourage domestic economic diversification which has been dependent on raw commodity exports. With uncertain global conditions, it is time to boost the downstream industry, increase the added value of products before exporting," he added.

Utilizing BRICS Membership

Meanwhile, as reported by CNBC International, the Director of the Region for the Asia The Economist Intelligent Unit (EIU), Duncan Innes-Ker assessed that the group of developing economies or known as BRICS (Brazil, Russia, India, China and South Africa) including Indonesia that has just joined could benefit from the US and Chinese trade wars. According to him, if BRICS members make the right action, then they can take advantage of this problem to prioritize the trading agenda of their respective countries.

BRICS members have an interest in building a world with various countries that fill leadership roles. Therefore, they will look for ways to take advantage of tensions to build BRICS profiles," he said.

As is known, BRICS has long rejected the dominance of international institutions. However, the lack of unity prevents member states from producing an alternative solution. Now, with the tariff war that Donald Trump has taken that can harm every member, BRICS has a new goal to move forward together.

BRICS member countries may be able to negotiate various trade deals with many countries. Moreover, the background of global trade turmoil can also benefit emerging markets in a more real way," said INnes-Ker.

Director of the Digital Center of Economic and Law Studies (CELIOS), Nailul Huda also sees Indonesia's membership in BRICS will provide benefits to be able to escape traditional markets such as the United States. The membership of BRICS which also includes Middle Eastern countries can be used by Indonesia to expand market reach to the region.

"So actually the profit of entering BRICS is quite large. Especially now that there is a trade war between the US and China which has the potential to cause the global economy to slow down and certainly have an impact on developing countries such as Indonesia," he said.