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Indonesia braces for US-China trade war fallout

Jakarta Globe - June 6, 2024

Vinnilya, Jakarta – The ongoing trade war between the world's economic giants, China and the United States, is anticipated to escalate further as the November 5, 2024 election approaches. This trade conflict could have adverse effects on Indonesia, which relies heavily on the world's biggest economies.

In April 2024, Indonesia's largest non-oil exports were to China, amounting to $4.28 billion, followed by India with $1.81 billion, and the United States with $1.75 billion.

Senior analyst at MNC Sekuritas, Rudy Setiawan, warned of the impact of the trade war on nickel prices, one of Indonesia's main commodities.

China's flagship product is electric vehicles (EVs), which require nickel from Indonesia. An increase in import tariffs on EVs from China to the US is feared to cause a decline in nickel prices.

"At present, nickel prices are starting to rebound driven by manufacturing production from China after experiencing a significant decline last year. However, compared to other commodities such as coal and oil, nickel is lagging behind," explained Rudy.

The US-China trade war has been ongoing since 2018 when Donald Trump was president. The conflict reignited when US President Joe Biden imposed tariffs on Chinese products related to EVs.

Head of Research at NH Korindo Sekuritas Indonesia, Liza C. Suryanata, said that this protracted trade war could have negative impacts on Indonesia's economy, which relies on commodities.

"I believe behind this trade war there are political interests. So far, it has already impacted the rise in copper prices... this will slow down global economic recovery and reduce energy demand," explained Liza.

Joe Biden and Donald Trump are expected to have a rematch in the US election. Both have taken stances on utilizing the trade war issue to gain public support politically.

Head of Investment at Infovesta Utama, Wawan Hendrayana, said that the escalation of the trade war could potentially lead to another global economic slowdown.

"China's economy and supply chain have already begun to slow down. Many manufacturing factories have moved out of China to several countries in Asia and Mexico," he said.

"Indeed, this year is still quite challenging for the world economy, but we hope that it will be better in the future," he added.

President Joe Biden raised import tariffs on Chinese vehicles from 25 percent to 100 percent. This includes pure electric vehicles (BEVs) of all sizes, as well as plug-in hybrids (PHEVs).

Batteries from China will also face steep tariffs. For example, import duties for batteries will increase from 7.5 percent to 25 percent, effective January 1, 2026.

US Trade Representative Katherine Tai said that the new tariffs are justified because China is accused of stealing US intellectual property.

The Chinese Embassy in Washington said that the tariff hikes would not only disrupt normal economic and trade cooperation between China and the US but also significantly increase the cost of imported goods.

Source: https://jakartaglobe.id/business/indonesia-braces-for-uschina-trade-war-fallou