Indonesia’s Incoming Trade War: 5 Geopolitical Effects You Need to Know
1. Indonesia’s fight with the EU could create trade war
Indonesia announced today that it will immediately recommend to an inter-ministerial team a 20%-25% tariff on EU dairy products as the appropriate response to the EU’s plan to impose anti-subsidy duties of 8%-18% on palm biodiesel from Indonesia. This seems the spark to a trade war between Indonesia and the EU, but there are feelings that Indonesia’s industry would get hurt the most, as the EU duties would be another blow to Indonesian biodiesel producers after the 28-nation block said in March that palm oil should be phased out of renewable transportation fuels due to palm plantations’ contribution to deforestation. “If the parameters are not fair, it’s a step toward protectionism and a trade war, and we will not stay silent for the unfair treatment,” Enggartiasto Lukita told an economic forum in Jakarta. It remains to be seen whether Jakarta will back down or not.
2. Effects of EU sanctions already visible
The effects of the EU’s tariffs on Indonesia can already be seen, as the EU ban on palm oil could keep Norwegian telecommunication giant Telenor Group out of Indonesia. The EU parliament passed on 10 June 2019 a law that will restrict and ban palm oil usage in biofuel by 2030. Since Telenor originates from the EU, the merger should be scrutinised, according to Indonesia’s Minister of Communication and Information Technology, Rudiantara. Nevertheless, the exclusion of an important company from Indonesian operation signifies that Indonesia will suffer economically from the incoming trade war.
3. Trade co-operation with Malaysia booming
However, although Indonesia will face a reduction of trade and economic benefit from EU companies, its economic relations with its neighbours, including Malaysia are booming. In fact, the state oil companies of Malaysia and Indonesia could cooperate or even merge to expand their businesses together, according to Indonesian President Joko Widodo. This is important for Indonesia and can play a big part in making up for the lost business from the EU.
4. Vietnam crucial partner
Indonesia’s economic partnership with Vietnam is even more developed than with Malaysia, and Indonesian Ambassador to Vietnam Ibnu Hadi has expressed confidence that trade between Indonesia and Vietnam will reach US$10 billion by 2020. “This year, I am optimistic that the trade value between Indonesia and Vietnam can reach around $9.6 billion to $9.8 billion. Therefore, [I believe] the target of $10 billion can be achieved by 2020.” This will be crucial in maintaining the activity of the Indonesian economy should it embark on a trade war with the EU.
5. Indonesia facing tax from China as well
Indonesia is not only facing tariffs from the EU, as China said on Monday it will impose anti-dumping duties on some stainless steel products imported from Indonesia, among others. The decision follows an anti-dumping probe in July last year after a complaint filed by state-owned Shanxi Taigang Stainless Steel. “The investigation agency has made a final decree that there was dumping of the investigated products and it has caused substantive damage to the industry in China,” said the commerce ministry in the statement. This will come as another blow to the Indonesian industry and may force them to reconsider an entrance into a trade war.