Indonesian textile, garment and tire manufacturers are benefiting from the ongoing trade war between the United States and China, leading to optimism that Southeast Asia's largest economy may overcome global economic turbulence expected next year. (Antara Photo/Oky Lukmansyah)

Indonesia Starts to Benefit From US-China Trade War, Business Lobby Says

OCTOBER 30, 2019

Jakarta. Indonesian textile, garment and tire manufacturers are benefiting from the ongoing trade war between the United States and China, leading to optimism that Southeast Asia's largest economy may overcome global economic turbulence expected next year.

Rosan Roeslani, chairman of the Indonesian Chamber of Commerce and Industry (Kadin), said he expected the trade war to continue for some time, but that local businesses had started to find ways to adjust and benefit from the dispute. 

"When the US and Chinese economies – two of our largest trading partners – started to decline due to the trade war, Indonesia's automatically followed," Rosan said during a discussion titled "2020 Economic & Capital Market Outlook" hosted by Investor magazine in Jakarta on Tuesday.

Indonesian exports to the United States fell 1.5 percent year-on-year to $12.9 billion in the first nine months, according to Central Statistics Agency (BPS) data. Exports to China were meanwhile 1 percent lower at $18.3 billion in the same period. 

"But it is not all bleak. When I spoke with the textile association, they said next year's garment exports to the United States would increase by between 20 percent and 25 percent," Rosan said, adding that tire manufacturers also expect higher exports. 

Indonesia exported garments worth $63 million and tires worth $729 million to the United States last year, according to the United Nations Commodity Trade Statistics Database (UN Comtrade). 

Rosan said the increase in exports was due to a fair-trade agreement and the implementation of a reciprocal system between the United States and Indonesia.

"They will buy our garments as long as we buy their cotton," Rosan said, adding that Indonesian exports are still exempt from US tariffs. 

He therefore expressed optimism that Indonesia's textile and garment exports would continue to increase next year, despite the expected global economic slowdown.

Indonesian Resilience

Various international institutions, including the International Monetary Fund and World Bank, have revised global economic growth projections for 2020 down to 2.6 percent from 3.4 percent. Several major economies, such as Germany, Italy and Britain, also face recessions. Emerging economies such as Turkey, Argentina, Iran, Mexico and Brazil, are also highly stressed. 

"In 2020, there will be a lot of pressure. However, Indonesia will not experience a huge amount of pressure, compared with other countries," Rosan said.

He added that exports only account for a third of the Indonesian economy and that the country has yet to fully integrate into the global supply chain, making its economy more resilient to global shocks. 

"What must be maintained, is purchasing power if we want to maintain growth of 5 percent. We can be optimistic, but we must still be realistic. We have achieved 5 percent, which is very good amid global pressure," Rosan said.

He said the business community appreciated Bank Indonesia's move to cut its benchmark interest rate by 100 basis points over the past four months and that he expected this to translate into increased borrowing by local businesses over the next three to six months. 

He also expressed hoped that the government would fulfill President Joko "Jokowi" Widodo's promise of improving the investment climate.

"Investment is not easy, as we are competing with other well-performing countries," Rosan said.

He added that Indonesia still had to reform its labor laws, improve productivity and integrate further into the global value chain to improve the investment climate.