Anticipating the Worst

ANTARA FOTO/ALOYSIUS JAROT NUGROHO

A worker puts the finishing touches on miniature Buddha statues in Ngadirojo, Ampel, Boyolali, Central Java, Thursday (5/7/2018). Various types of ceramic miniature sculptures such as Buddha statues and Balinese dancer statues made from clay or stoneware are sold at Rp 100,000 to Rp 30 million. The products have been exported to the United States, India, Dubai, Canada and the United Kingdom.

Indonesia, both directly and indirectly, has started to feel the impacts of the increasingly heated global trade war between the United States and its trading partners, especially China.

This condition forces us to be prepared for the worst. We see the stuttering on the part of the government when the threat is in sight. Moreover, the fact that Indonesia is now included in the direct target of a mass protectionist policy launched by Donald Trump, through the US’ plan to evaluate the imposition of preferential tariffs on 124 export products from Indonesia.

We can no longer underestimate the destructive effects of the trade war, which is currently not yet at its peak, due to the ongoing counter-action between the United States and China. Indonesia is one of the 16 major trading partners, identified by the United States as a contributor to the deficit of US trade balance, so that sooner or later it will become the shooting target.

In fact, without this, we will certainly be affected by the indirect impacts of the trade war, starting from the flood of imports, pressure on the financial market, the exodus of capital flows, and the threat on the economic growth. The rage of the trade war will further worsen the turmoil and uncertainty of the global economy that could lead to a crisis or world recession.

This situation requires every country to secure its domestic interests. Strengthening the resilience of the domestic economy becomes the biggest challenge, including by boosting domestic demand, tightening the domestic market, controlling the current account deficit, driving inflows of foreign funds.

ANTARA FOTO/RAHMAD

Workers show export quality salted fish in Pusong Baru village, Lhokseumawe, Aceh, Monday (9/7/2018). Since last week, the production of salted fish for export to Malaysia has decreased drastically, up to 80 percent, due to a lack of fish stocks from fishermen owing to bad weather, rain and strong winds, which forced a number of salted fish producers to halt operations.

So far, as a bit of a late response, the government has taken a number of steps, such as setting up a working group to anticipate the trade war and various incentives for the industry. Other things have been done, such as reducing import duties for export-oriented industries, providing incentives for labor-intensive industries and SMEs, attracting megaproject investments, especially those for import substitution or export-oriented, and developing sectors such as tourism.

All of these steps can certainly not be expected to have an immediate impact in protecting the domestic industry from the effects of the trade war. Pressures from various quarters emerge to speed up free trade negotiations and bilateral agreements with the US, European Union, and other important trading partners. The government has to maximize its lobbying through negotiations, by mobilizing the best negotiators and lobbyists, to avoid the threat of arbitrary action against export products and blows to our domestic market.

Trade Minister Enggartiasto Lukita has not ruled out the possibility of launching retaliatory measures. However, once again, the trade war will not bring benefits to everyone, except for a handful of countries. Our position as a small player in global trade places pressure on Indonesia, forcing it to optimize all resources it owns to protect the interests of the country.

The stuttering in response to the possibility of a trade war forces us to contain the impacts, including the threat of an increasingly swelling trade deficit and current transactions, the effects of which may spillover.