Trade War Kicks Off, Trump also Eyes Tariffs on Indonesian Goods
The big news story today is that US tariffs on USD $34 billion worth of Chinese goods came into effect this morning (06/07). Considering China immediately imposed retaliatory tariffs on US imports, it means we are witnessing the start of the global trade war. There have been major concerns over simmering trade tensions ever since US President Donald Trump announced steep steel and aluminum tariffs back in late-February 2018. Now, however, the trade war has really arrived.
Trump earlier ordered import tariffs on USD $50 billion worth of Chinese goods that are shipped into the USA; the first round - covering USD $34 billion - kicked in on Friday morning (06/07), 12:01 am local Washington time. The tariffs are part of Trump's "America First" protectionist policy, hence undermining free trade policies in an effort to improve the US trade balance.
Regarding the remaining USD $16 billion of products (which could go into effect later this month), the White House said it would first need to consult on the tariffs. Knowing China indeed imposed retaliatory tariffs, the additional tariffs are expected to be implemented within two weeks. Moreover, Trump threatened that the amount of goods subject to tariffs could actually grow to more than USD $500 billion in a later stage.
Morgan Stanley estimates that every USD $100 billion of imports affected by the tariffs represents about 0.5 percent of global trade, and 0.1 percent of global gross domestic product (GDP). Big part of the problem is that the tariffs are estimated to impact negatively on the global supply chain.
Trade War between Indonesia and USA?
Meanwhile, Indonesia is also on Trump's radar as he detected a "suspicious" trade deficit in US-Indonesia trade relations. Back in April 2017 Trump had already called for an investigation into the "trade imbalance" between the US and 16 countries, including Indonesia.
Therefore, the US is currently studying whether to impose import tariffs on 124 Indonesian products that are shipped to the USA. It specifically involves goods that are imported under the generalized system of preference (GSP), including plywood and cotton. This program, which was introduced in 1976, aims to support developing countries by reducing import duties and taxes. Normally, the program is extended each year. This time, however, the US said it is reviewing the goods' tariffs.
Non-GSP products that are being reviewed by the US government include textiles, agricultural products, shrimp, and crab.
Based on data from Statistics Indonesia (BPS), the US is among Indonesia's top three export destinations (in the non-oil & gas segment). In the first four months of 2018, non-oil & gas exports that were shipped to the USA reached USD $5.85 billion (up 3.6 percent on a year-on-year basis), and accounting for 10.9 percent of Indonesia's total (non-oil & gas) exports in the January-April 2018 period.
Meanwhile, imports of US products into Indonesia rose at a much steeper level - 27.1 percent (y/y) - to USD $3.07 billion in the January-April 2018 period. Nonetheless, Indonesia has the upper hand in US-Indonesia trade relations with a USD $2.78 billion trade surplus.
Shinta Widjaja Kamdani, Chairman of International Relations and Investment at the Indonesian Employers Association (Apindo), said domestic industries are concerned about the possible implementation of import tariffs on 124 Indonesian goods. Kamdani said she hopes that the Indonesian government can organize a successful lobby and reassure the US government that the goods that are exported under the GSP are not the cause of the US trade deficit.
Indonesian Trade Minister Enggartiasto Lukita stated that Indonesia would be ready to prepare a retaliatory move provided the USA indeed imposes import tariffs on 124 Indonesian products. However, before that time arrives, Lukita supports a soft approach to prevent the breakout of a trade war between both countries.