RI-US Agreement On Trade Tariffs Can Increase The Expenditure Expenditure Expenditure Expenditure Budget

JAKARTA - President of the United States (US) Donald Trump announced the achievement of a new trade agreement with Indonesia, including related to import rates, after holding direct talks with President Prabowo Subianto.

For information in the agreement, the US agreed to set a import rate of 19 percent for products from Indonesia, lower than the previous 32 percent. Meanwhile, US export goods to Indonesia will be exempt from tariffs or free entry.

In addition, as part of the deal, Trump said Indonesia is also committed to investing in a number of American products, such as buying 15 billion US dollars in energy commodities, 4.5 billion US dollars in agricultural products, and 50 Boeing 777 jets.

Head of Bank Permata economist, Josua Pardede, assessed in terms of state spending that the implications of the agreement requiring the Indonesian government to increase the purchase of US products have the potential to increase the burden of APBN spending in the short to medium term.

"Especially if this trade agreement targets the procurement of strategic goods, such as technology products, defense equipment, or relatively expensive infrastructure," he told VOI, Thursday, July 17.

Josua said this has the potential to reduce the government's budget, especially if the price of products from the US is higher than the alternative from other countries.

Therefore, he hopes that Indonesia must ensure that this US product expenditure is directed to products that really have strategic added value and are able to increase efficiency in the long term.

He gave an example, such as information technology, green energy, or industrial equipment that can encourage increased national economic productivity.

In addition, Josua added that if Indonesia manages to optimize imports of US products that are investment-oriented and strategic raw materials such as ICT equipment, advanced industrial machinery, or health and pharmaceutical products that so far have high import rates, this policy can actually have a positive effect on production efficiency, domestic industrial competitiveness, and national economic productivity in the medium to long term.

"This positive effect can ultimately result in higher economic growth, which will indirectly increase tax revenue and compensate for some decreased income from import duties," he said.

According to him, the main key for Indonesia in dealing with the impact of this trade agreement is to selectively manage the types of products imported from the US and formulate a strategy to optimize the state budget.

He added that negative impacts on import duties can be minimized and the medium-long term benefits of this agreement can be further optimized.

He emphasized that the synergy between foreign trade policies, fiscal, and industry is important in order to create a balance between state revenue targets and national economic development goals.

Josua conveyed that the trade agreement between Indonesia and the US, which includes the implementation of a 0 percent tariff on imported goods from the US, has the potential to have significant implications for state revenues, especially in the field of customs and excise.

He estimates that in the short term, this policy is expected to have an impact on reducing import duties.

"Although the share of US products in total imports of Indonesia is relatively moderate compared to China or the ASEAN state, the loss of potential income from the elimination of US import rates will still be felt," he said.

He explained that historically, import duties averaged around 2 percent to 3 percent of total state revenues, so the direct impact on the state budget is estimated to be relatively limited, but cannot be completely ignored, especially in a fiscal situation in Indonesia that faces the challenge of tax revenues.

According to him, specifically, the abolition of tariffs will be more significant if US goods imports are dominated by consumption products that have high rates, such as food products, motorized vehicles, and certain electronic goods.

On the other hand, he said that if imports from the US are more dominated by capital goods and raw materials which had previously been subject to low tariffs or even zero percent, their impact on state revenues would be relatively minimal.

"Thus, the structure of imports from the US to Indonesia will determine how much pressure on state revenues from the import duty side," he said.