Arya News - Industrial estate managers say US import tariffs and anti-China trade policies are a burden on their business, forcing them to resort to operational and regulatory measures, as well as diversification, to ensure their global competitiveness.
JAKARTA – Industrial estate managers say United States import tariffs and anti-China trade policies are a burden on their business, forcing them to resort to operational and regulatory measures, as well as diversification, to ensure their global competitiveness.
Batam Free Trade Zone Authority (BP Batam) undersecretary for investment Fary Djemi Francis told The Jakarta Post on Friday that the 32 percent tariff the US plans to impose on goods shipped in from Indonesia would present “significant pressure” on Batam’s export industries, particularly electronics, furniture and solar panels.
Batam is home to dozens of industrial estates that host more than two dozen manufacturing industries, ranging from food and beverages to metals, all subject to BP Batam oversight as the government’s designated authoritative body.
Despite the pressure, Fary said, the tariffs “are not the end of the story [but rather provide] an opportunity for comprehensively reinforcing the industrial structure and the region’s strategy”.
Fary elaborated that the first of three steps BP Batam planned to take was to push downstream development further, since more advanced manufactured goods could increase margins by 20 to 40 percent, “which is enough to absorb the new tariff burden”.
Moreover, the region was seeking to expand the range of target countries for its products to minimize reliance on one or a small number of markets. The undersecretary said Batam was now actively trading with Australia, the United Arab Emirates (UAE), Japan, South Korea and Europe.
The third step was to reform the investment climate by making regulations more business-friendly and expediting procedures.
“The tariff will become burdensome, but it’s not the end of everything. Indonesia has proven to be resilient in facing big crises, such as those of 1998 and 2008,” noted Fary.
PT Kawasan Industri Terpadu Batang, the manager of Batang Integrated Industrial Estates, now called Batang Industropolis, told the Post on Friday that it believed Indonesia would remain “competitive and relevant” despite the global tariff dynamics and the transshipment crackdown by the US.
Transshipment refers to the transfer of cargo between different modes of transportation or rerouting it through different locations before shipping it to the final destination. The issue was highlighted by US President Donald Trump.
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Many believe Trump’s tariff maneuvers are primarily directed at diminishing China’s role in global trade by preventing Chinese companies from circumventing harsh anti-China trade restrictions by shipping goods to other countries for eventual export to the US.
In letters sent out to numerous heads of government last week, Trump told US trade partners that higher tariffs would become effective on Aug. 1.
While Trump did not explicitly name China in the letters, he warned that, if goods were being trans-shipped, the middlemen countries might face even higher duties.
Centre for Strategic and International Studies (CSIS) Indonesia analyst Riandy Laksono said the idea behind stymying transshipment was to block not just products made in China but also those made by China.
How exactly the US defines circumvention measures matters to Indonesian industrial estates, many of which rely heavily on investment from China, but Washington has not clearly delineated such practices, which complicates efforts by countries negotiating with the US.
Asked about what kind of sweetener Jakarta could offer to appease Washington, Riandy said in a press briefing on Thursday: “It’s difficult”, given the uncertainty of transshipments.
“Whatever sweetener [is offered] will not be enough without our commitment to [stopping] transshipments,” said Riandy.
Trump’s trade war with China goes back to his first term in office from 2017 to 2021 and was continued by his successor Joe Biden, who introduced new import, export and investment restrictions.
The US policies prompted numerous Chinese companies to relocate to other countries or build offshore establishments to avoid high tariffs under what became known as the China+1 strategy.
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Asked whether that strategy had become obsolete due to the US scrutiny of Chinese shipments through, or production in, other countries, Krisna Gupta, a senior fellow at the Center for Indonesian Policy Studies (CIPS), told the Post on Friday that it depended on how successful the US would be in detecting circumvention efforts.
Should the US be successful in that regard and should Trump be serious about his statements, China+1 might be obsolete for exports to the US, said Krisna.
China+1 has been a boon for various countries, particularly Vietnam, that welcomed Chinese investment into local manufacturing facilities. Should the strategy no longer be viable, such foreign direct investment (FDI) may decline.
Krishna, however, argued that FDI ultimately came down to global demand.
“The US is violating international agreements. The announced tariffs are immense, enough to ruin its own economy. The main problem, however, is that Trump is terribly random, which intensifies [global] uncertainty and convolutes the business climate that is already haunted by many uncertainties. There are many better ways, but Trump said ‘tariff’ is the most beautiful word, so…” said Krisna.
Indonesia is among numerous countries that have been trying to secure bilateral trade deals with the US over the past few months, but only the UK and Vietnam have signed agreements so far.
CSIS’s Riandy argued that what Jakarta had offered in concessions was already “on par” with what Hanoi had brought to the table, but Vietnam was the preferred China+1 destination, making it the more important party for trade talks.
A diversification of their target countries could help some manufacturers in Indonesian industrial estates reduce reliance on the US, the world’s largest consumer market, and has increased pressure on Jakarta to wrap up talks on the Indonesia-European Union Comprehensive Economic Partnership Agreement (IEU-CEPA).
Coordinating Economic Minister Airlangga Hartarto said all issues regarding the pact had been resolved and the final signing was expected in the third quarter of 2025.
“This is certainly a milestone amid the uncertainty between Indonesia and the EU. Our products can now enter Europe at zero tariffs,” Airlangga told reporters in a video interview issued in Jakarta on Sunday.
He was speaking from Brussels, where he joined President Prabowo Subianto for meetings with European Commission President Ursula von der Leyen and European Council President António Costa, as well as King Philippe of Belgium.