TIF FEB UI

Written by: Padantya Hayu Jenar Arundaya, Sabrina Nazara Arifadillah, & Rachel Burhan Ali

Publication Date: 19th August 2024

What is happening?

On June 26th, 2024, Indonesia's Minister of Trade, Zulkifli Hasan, revealed that they are drafting up new regulations to increase the import duties for goods originating from China by 100% 200%. This regulation is issued in response to the current market condition where a large number of finished goods (especially textiles) from China are flooding the market, causing many Indonesian MSMEs to shut down as they are unable to compete with the highly affordable Chinese products. This claim is reinforced by the fact that, according to the Central Statistics Agency, in 2023, Indonesia's import to China exceeded $62.88 billion, making China Indonesia's biggest import partner.

Pros

The new regulation is expected to benefit Indonesia in various ways. The import duty increase could restore Indonesian local products competitiveness especially for Indonesian MSMEs, which are a crucial sector given the fact that it absorbs 83,57% of Indonesia's workforce. This regulation could also function as a shield to prevent another imported Chinese goods wave that might potentially crash the Indonesian product market down.

Cons

On the contrary, this regulation might also lead to some unwanted consequences. This is considering Indonesia's high dependence on cheap Chinese products. A problem might arise if Indonesia's local industries are incapable of fulfilling public demand for Chinese products in Indonesia. As a result, this regulation may increase the illegal trade activities in Indonesia that may lead to reversed outcomes to the economy. Furthermore, the price of Chinese imported products would also increase significantly. The markup may decrease the price margin for local industries that are highly dependent on imported materials such as pharmacy and technology industries.

Could a 200% tariff on Chinese Goods Strain Indonesia-China Relations?

As we all know, the good relationship between Indonesia and China has brought us many benefits to the economy, especially in the fields of investments. Increasing import duty for Chinese goods as high as 100% 200% could clearly disadvantage China's export market. In the worst case, this specific import regulation might also create tensions in the bilateral relationship between Indonesia and China. Such tensions with China would certainly affect diplomatic relations and could lead to broader economic repercussions.

Other country comparison

The proposed import duty rate is also very high compared to other countries. Malaysia, which also faces similar high dependency to Chinese imported products, has a rate that varies between 0% to 50% depending on the product type. Despite that, they didn't impose a special import regulation for China. Undoubtedly, this regulation might weaken Indonesia's position in terms of international trade.

Epilogue

Indonesia still needs to reconsider and optimise this policy agenda. The government should make sure that Indonesia could address the potential product shortage that may occur as a result of this new regulation and how this policy would affect Indonesia and China's bilateral relationship. One potential approach the government could consider is to increase the import duties and diversify its regulations by applying a different rate for each sector, in accordance with its urgency. This helps prevent the regulations from having a bad impact on significant sectors.

References

Akmal. (2022). Proven Dumping, Chinese Lysine Products Subject to Anti-Dumping Import Duty. Ministry of Trade of the Republic of Indonesia. https://kadi.kemendag.go.id/berita/terbukti-dumping-produk-lisin-asal-china-kena-bea-masuk-anti-dumping

Andriyawan, Dea. (2024). Protecting Local Industry and MSMEs, the Minister of Trade Will Implement Import Duties of Up to 200%. Ministry of Trade of the Republic of Indonesia. https://www.kemendag.go.id/berita/pojok-media/lindungi-industri-dan-umkm-lokal-mendag-bakal-berlakukan-bea-masuk-hingga-200

Cristina, Martha. (2022). Which is the Greater Benefit or Loss for Indonesia in Cooperating with China? In Undiksha's Journal of Civic Education (Vol. 10, Issue 3). https://ejournal.undiksha.ac.id/index.php/JJPP

DFH Global Logistics. (2023, April 28). All You Need to Know about Shipping from China to Malaysia. Air Freight, Ocean Freight, Road Freight International Forwarder. https://dfhfreight.com/portfolio-item/china-to-malaysia/

Indonesia. Central Bureau of Statistics. (2024). Foreign Trade Statistics Import of Indonesia 2023 Book 1. https://www.bps.go.id/en/publication/2024/07/05/a341afd3aa91334abb3436e0/foreign-trade-statistics-import-of-indonesia-2023-book-i.html

Indonesian Chamber of Commerce and Industry. (2024, July 8). Indonesian MSME Data and Statistics. https://kadin.id/data-dan-statistik/umkm-indonesia/

Regulation of the Minister of Finance concerning Customs, Excise, and Tax Provisions on the Import and Export of Consigned Goods (Indonesia). Accessed in August 2024 https://jdih.kemenkeu.go.id/in/dokumen/peraturan/096ada78-1085-4ea9-3727-08dbbb1502daon