In the short term, Indonesia's new president, Prabowo Subianto, will face challenges in capitalizing on the U.S. leadership transition to achieve his economic agenda.
Candidates’ Policies
One of Trump’s infamous policies was the imposition of aggressive import tariffs on all countries—without exemption of allies—with which the U.S. has a trade deficit. In 2018, Trump announced Section 232 of the Trade Expansion Act of 1962 to impose a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum from all the U.S. trading partners and Section 201 and 301 of the Trade Act of 1974 to impose import tariffs of 10 to 15 percent on Chinese products.
Recently, in his campaign, Trump promised to impose a universal tariff of 10-20 percent on all goods imported into the U.S. and a 60 percent tariff on all Chinese goods to “decouple” the U.S. from China. Furthermore, Trump aims to revoke China’s Most Favored Nation trade status and adopt a four-year plan to phase out all imports of essential goods, including ensuring that China cannot circumvent restrictions by passing goods through conduit countries.
Meanwhile, for Harris, we can expect policy continuation from the Biden administration as both have overlapping values. Despite tariff renegotiation with ally countries, the Biden administration maintained most of the protectionist policy initiated under Trump, even utilizing other instruments such as import quotas and industrial policies.
For example, to contain China’s domination and strengthen the U.S. domestic semiconductor and green industries, Biden passed an industrial policy in the form of the CHIPS Act of 2022 for semiconductor manufacturing and the Inflation Reduction Act of 2022 (IRA) for green industries manufacturing. Reflecting on her campaign promises, Harris will maintain these tariff and industrial policies.
Regarding China, we can expect a similar approach from Harris with less aggressiveness than Trump. It can be observed from using a “de-risking” strategy and engaging China wherever cooperation is possible. However, it does not mean Harris cannot pursue a more hawkish policy toward China.
The significant opposing policy between Harris and Trump will be the utilization of multilateralism. We can expect Trump to withdraw from multilateral agreements as he has done in the past. Meanwhile, Harris will favor multilateralism, build strong coordination with allies, and also engage countries with values different from the U.S. In 2022, the U.S. established the Indo-Pacific Economic Framework (IPEF) to solidify its relationship with ally countries. The U.S. also initiated a critical minerals alliance to secure a vital mineral supply chain.
The Outlook for Indonesia's New Government
There are at least three reasons why Indonesia will not gain significant economic advantages from the U.S. change in leadership. First, economically, Indonesia has yet to be a key trading partner for the U.S. In 2023, Indonesia ranked 20th and 35th as the U.S. import and export partners, respectively. Thus, small incentives exist for the U.S. to actively increase its economic engagement with Indonesia.
Second is the idiosyncratic factor. Whether Harris or Trump, Indonesia will struggle with the new U.S. leader. Despite the positive tendency towards multilateralism, economic cooperation, and global agenda, Harris’s winning will not directly translate into economic benefit for Indonesia. Prabowo’s government must anticipate a value-driven economic policy from Harris based on American liberal values and principles such as democracy, social justice, respect for human rights, and addressing climate change. We can expect that the U.S. will require Indonesia to follow specific standards of economic governance based on those values.
In the long run, all these requirements may assist Indonesia in aligning with global standards. However, the issue for Prabowo’s government is that his economic targets require massive investment and must be executed quickly. Negotiating economic cooperation with value-driven leaders like Harris will take years, even possibly more than one presidential term, to reach an agreement.
On the contrary, Indonesia will face a more unpredictable global economic landscape under Trump. Referring to his policies, Trump may abandon multilateralism again and operate through unilateral actions or bilateral negotiations. However, Trump's success may have an upside.
In Gideon Rachman’s book titled “The Age of Strongman,” Trump is depicted admiring strong leaders like Erdogan, Putin, and even Xi Jinping. Prabowo himself can be considered to be a “strongman” figure within Indonesian politics. The alignment of personal styles between Trump and Prabowo will potentially help Indonesia’s economic relations with the U.S. Moreover, Trump’s transactional policy style will be preferable for Indonesia’s bilateral negotiations.
Despite leader character alignment, one of the biggest hindrances for Indonesia-U.S. economic relations is Jakarta’s close ties with Beijing. It will be challenging for Indonesia to negotiate with the U.S. government and businesses when they can sense China’s influence. For instance, Indonesia’s battery for electronic vehicle (EV) industries will strongly feel the obstacles as Indonesian nickel smelters operate under China's companies.
However, this does not mean it will eliminate Indonesia’s opportunity to gain an advantage from the trade and investment diversion caused by the U.S. containment policy over China. To fully capitalize on these dynamics, there are three perquisites at minimum. First, Indonesia must determine how it wants to utilize this opportunity. What kind of investment does it want to attract, and what type of trade does it intend to participate in? Second, the new government should ensure minimum or even no presence of China in the industries they intend to develop. Third, as Indonesia is not the only country competing for the “blessing” of the Washington-Beijing tension, Prabowo must address the domestic structural challenges, particularly regulation, as Indonesia is “losing” out to neighboring countries, such as Vietnam.
Lastly, under this scenario, Prabowo will likely continue to engage and negotiate with the U.S. to build stronger economic ties, albeit without expecting that this engagement will massively help him achieve his economic target. Thus, the other option for Prabowo is to increase or maintain economic cooperation with China and seek other investments from countries that implement more transactional rather than value-driven policies. (INE)
*) Baginda Muda Bangsa is a political economy analyst with LAB 45.
The views and opinions expressed on this page are those of the author and do not necessarily reflect the official policy or position of ANTARA News Agency.
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