17 February 2020 (closed)
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As promised US President Donald Trump pulled the United States out of the Trans-Pacific Partnership (TPP), an ambitious free trade deal that was signed in October 2015 (after five years of negotiating) and had created the world's largest free trade area (covering 12 countries and 40 percent of global trade). Trump's move to withdraw the USA from the TPP implies that he distances the USA from its Asian allies and gives China the opportunity to fill in the empty space that is left by America.
According to Trump, multinational free trade deals are a burden for the US economy, specifically the US job market. Instead he seeks more protectionist trade policies in an attempt to boost the US economy. Instead of multilateral trade deals, Trump seeks bilateral trade deals that can be rapidly terminated in case the partner "misbehaves".
It also remains unclear whether Trump wants to find an alternative way to reassure the US allies in Asia. For example, will he now seek bilateral trade deals with Japan, Taiwan and Vietnam, individually? All three Asian nations are key manufacturing bases in Asia.
Meanwhile, the TPP, spearheaded by the USA, was also believed to be intended as a counterbalance to the big and rising economic influence of China, especially in Asia. That would explain why China was excluded from the TPP deal. However, now the USA has withdrawn from the TPP, China may be invited to replace the USA.
Australian Trade Minister Steven Ciobo (Australia being one of the TPP members), said China and Indonesia could join in the vacuum that was left by the USA. Indonesia previously already expressed its interest to join the TPP. However, there is disagreement among the country's leaders whether Indonesia is ready to become a member of the deal and face tough competition under a free trade deal. Given Indonesia's huge population but lack of competitiveness (and infrastructure), there is concern whether Indonesia will simply become a massive importer of cheaper foreign products.
Whether China is interested to join the TPP remains unknown. The world's second-largest economy previously set its eyes on its own regional trade pacts, suggesting a Free Trade Area of the Asia Pacific. Meanwhile, China is also supportive of the Regional Comprehensive Economic Partnership (RCEP), envisaged to be a free trade deal between countries including Australia, China, India, Japan, South Korea and New Zealand.
After withdrawal of the USA, there remain 11 TPP members: Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, Singapore, Vietnam, Australia and New Zealand.
Now the USA has gone on a protectionist approach, it remains unknown whether it will have a big impact on Indonesian exports. In 2016 the USA was the largest export destination for Indonesian exporters. Indonesia's exported USD $15.7 billion worth of goods to the USA, compared to USD $15.1 billion to China and USD $13.2 billion to Japan in the same year. Shipments from Indonesia to the USA are dominated by rubber, shrimp, furniture, textiles, and footwear. If Trump raises import duties in a move to curb imports into the USA, then Indonesian shipments will be affected.
Meanwhile, Indonesian Finance Minister Sri Mulyani Indrawati previously stated that global market jittery (caused by Trump's new policies) can impact on Indonesia's exchange rate and inflation. Both are Indonesia's most volatile spots in times of global turmoil.