The United States has lifted several tariffs on Indonesian products in response to multibillion dollar trade deficit with the country, according to Indonesian officials. The United States had was removing tariffs on a range of Indonesian goods under a special trade pact it has with the Indonesian government. The removal of the tariffs marks the latest example of how Washington is looking to improve its economic relationship with the country. The United States is the largest investor in Indonesia and it relies on the country for its trade and energy supplies.
The US had been removing tariffs on a range of Indonesian products as part of the trilateral agreement signed with the Indonesian authorities. This pact is called the Enhanced Trans Pacific Partnership (EPAP). This pact allows the two countries to boost their exports by eliminating tariffs on a variety of goods ranging from automobiles to food to electronics. The removal of the tariffs is part of the US efforts to open up its market to more exports. The US Trade Representative’s office in Washington had informed the Indonesian government that it would be removing all existing tariffs on Indonesian goods in response to the improved trade pact.
The Indonesian authorities had warned that the removal of the tariffs would hurt the Indonesian economy, hitting its gross domestic product growth. Foreign direct investment (FDI) into Indonesian companies has also reduced due to the increase in trade barriers. Indonesian officials told the foreign traders that despite the removal of the tariffs, they were still not completely free from FDI but only from a limited number of beneficial suppliers. Indonesian exporters are worried that the reduced flow of FDI will reduce the number of goods imported into the national market that can then be re-exported in the form of overpriced goods in the domestic market.
However, analysts believe that the removal of the tariffs is good news for Indonesian exporters as it opens up the market to more exports in the international trade. The decrease in the number of imports can reduce the cost of raw materials and lessen the cost of importation of finished products into the country. The Indonesian authorities estimate that the reduction of around twenty percent in the annual quota of imports means an increase of about eleven billion dollars in yearly revenues for the country. This is good news for Indonesia’s economy as the money can now be used to further enhance the productivity of the country’s agricultural sector and invest in research and development of the country’s future.
To make up for the lost foreign trade, Indonesian exporters have diversified their business activities so that they can also earn revenues from other sectors as well. These moves are seen as an attempt to secure their share of the international export market that has remained closed to them till now. In fact, the recent economic slowdown in China has forced many countries to re-adjust their strategies to accommodate the slowdown. Many countries have re-negotiated their bilateral trade deficit with China and Indonesia is no exception.
Re-balancing efforts by Indonesian authorities to lessen its import bill are seen by many as a welcomed move. However, some argue that the measures announced could have a long-term impact on the Indonesian economy. According to these experts, the restrictions on exports and imports could affect the competitiveness of Indonesian products in the global market. Some also warn against the “diverting resources” for the re-balancing effort by pointing out that doing so would result to the ban of some domestic products that Indonesia needs in order to boost its economy.
For the time being, the ban on Indonesian crude oil imports and re-balancing efforts do seem to be benefiting the country’s economy. Imports of crude oil have surged in the past few years as demand from key customers like the United States, Britain and Germany has increased. Indonesia’s dependence on these global players for crude supplies is one reason why it has been reluctant to invest in other types of exportable goods. However, with the ban on the palm oil industry, the focus has turned to other products that can help boost the economy.
The recent declaration by Indonesia’s President Joko Widodo on Friday that he will suspend Indonesian palm oil exports comes at a time when the country is grappling with a serious energy crisis. This sudden move by Widodo is expected to affect the country’s GDP growth, as well as the political stability of the country, due to the impact on foreign direct investment. It is not clear whether or not Widodo was pressured by the US or UK, or other international sources, to take this step. But whatever the reason, it is expected to have a lasting impact on Indonesia’s economy, which relies on the revenues derived from tourism and its large chunk of the $6 trillion global supply of petroleum.