The US Targets Indonesia’s Trade Surplus: Another Knock to Global Trade

Since the election of US President Trump, trade policy uncertainty and the rejection of the existing rules-based multilateral trading system has become a new normal. The escalation of trade wars between the US and China has undermined the entire notion of non-discriminatory trade.[1] This week was no different, when the US took aim at Indonesia.

Indonesia currently benefits from a series of tariff exemptions or reductions for around $2 billion worth of exports to the US, granted under a system of unilateral preferences for developing countries known as the Generalised System of Preferences (GSP). The US is reviewing the list of goods covered by the GSP with a view to impose or increase tariffs to Indonesia, as a way to redress what it considers as unfair trade – i.e. having a trade surplus with the US. This narrow mercantilist approach to trade, which ignores the balance of trade in services, the already large (but still growing) existence of global production networks, and inter-temporal trade, could have major repercussions for the future of global trade.

Source: UN Comtrade

After China, Mexico, Kazakhstan, India and Indonesia, the next target for Trump is likely to be Vietnam, which has the fifth largest trade surplus against the US. Vietnam has consistently scored trade surpluses against the US but these have been increasing over the last decade, to reach $40 billion last year. The threat to multilateralism isn’t over yet.

By Paul Baker, Chief Executive Officer at International Economics Consulting Ltd.

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[1] See also Quiles, P. (2018). The Impact of Trade Wars on Consumers. Thought of the Week, International Economics Consulting Ltd, July 30. Available at: https://www.tradeeconomics.com//the-impact-of-trade-wars-on-consumers

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