Ari Kuncoro: The era of Joe Biden and Indonesia
Nino Eka Putra ~ PR of FEB UI
DEPOK – (16/11/2020)
Professor Ari Kuncoro, Rector of Universitas Indonesia, released his writing published in the Kompas Daily, an Opinion rubric, entitled “Joe Biden and Indonesia Era”. The following is the writing.
“The Era of Joe Biden and Indonesia”
After going through a long and tense vote count, Joe Biden from the Democratic Party was finally declared the 46th elected president of the United States, defeating the incumbent President Donald Trump of the Republican Party.
The final vote tally showed Biden pocketed 306 electoral votes, out of the 270 electoral votes needed to win, while Trump won 232 electoral votes. At present, the recount of voting results in Georgia is still ongoing, but so far Biden is still ahead of around 15,000 votes. Even if Trump wins in Georgia, the additional 16 electoral votes from this state will not change Biden’s victory.
The question is how these developments will have an economic impact on Indonesia.
Change in world alliances
Without realizing it, whether the US president comes from the Republican Party or the Democratic Party, the world alliance has shifted. A world with only one superpower will also change again like the Cold War situation between the two camps, the US versus the Soviet Union, which lasted from the 1950s to the late 1980s.
This has been detected since the mid-1990s with the publication of the article “The Rise of China as an Economic Power” (Goodhard and Xu, 1996). The US strategy in the Cold War was to use China as a counterweight.
This strategy began with President Nixon’s visit to China in 1971. Nixon’s visit marked the start of China’s economic openness since the 1980s, led by Deng Xiaoping who took over from Hua Guo Feng in 1980. Economic reforms by Deng resulted in double-digit economic growth. for nearly two decades.
Recently the International Monetary Fund (IMF) acknowledged that with the purchasing power parity (PPP) calculation method in terms of the size of the economy (GDP size), China has surpassed the US. This raises concerns that the US’s dominant position in the world with one superpower will soon pass.
Since the time of President Barack Obama’s administration, the US has observed this trend. The perception arises that in terms of the trade balance surplus between the two countries, China will benefit more from taking advantage of the openness of the US market.
However, tensions only surfaced during the Trump administration. The policies adopted for foreign trade are more like mercantilists looking at the micro-surplus of the bilateral trade balance. The US is urging China to buy more of its agricultural products and / or open up the Chinese market to US companies.
Some of the top officials in the Obama administration are likely to rejoin the Biden administration, both in their capacity as advisors and top officials, so that in general the colors of his policies will not be too different from those of President Obama.
US foreign policy will not be as lowly and violent as in Trump’s era, but in general it will not shift too much, especially for international economic relations, especially with China. The trade war with China is likely to continue in a quieter form in the form of multilateral cooperation with other countries.
The concept of the Trans-Pacific Partnership, which the US decided to withdraw in 2017, may be revived. Within a narrower geographic scope, the US will optimize ASEAN in coordinating with Southeast Asian countries.
To increase its prestige in the eyes of the world, the US will rejoin the World Health Organization (WHO) and Global Climate Agreements, such as the Paris Climate Accord, which will form the basis for the US to interact with its partner countries. The attention to human rights will increase more than Trump’s, and this will affect the policy of defense cooperation with other countries.
Opportunities and challenges for Indonesia
In a trade war, the US Government may not help with financial incentives, but will facilitate through diplomatic channels of US companies which, for business reasons as well as the security of US companies and their affiliates, will relocate from China.
Last year Vietnam received the largest reallocation. However, the principle of not putting all the eggs in one basket will also put other countries, including Indonesia, on the radar. Premium electric carmaker Tesla’s talks are just one example. This opens up the potential for supply chain relocation and / or linkage development with Indonesia because the spare parts industry in Indonesia is among the strongest in Indonesia after the food industry.
In terms of export and import value, the US is in the fourth position of Indonesia’s trade partners after China, Japan and Singapore. Interestingly, the trade balance with the US is almost always a surplus. In 2019 the surplus was recorded at 8.5 billion US dollars, while with China a deficit of 17 billion US dollars.
One of Biden’s programs is Buying America, so it’s not too surprising if there will be a demand to buy more products from the US to balance the trade balance, and this repeats what Trump has already done. Environmental and labor issues will also concern Biden. For Indonesian palm oil exports, for example, the issue of sustainable palm oil may receive more serious attention than during the Trump administration.
The Biden government will relax policies relating to immigrants, including visas for students from abroad. During the Trump administration, the US higher education industry struggled with fewer applicants from abroad.
At this time of the pandemic, Trump’s policy of not granting residency visas to international students who only take online courses has further complicated the financial position of universities. In addition, the restricted H1 visa for experts hinders cooperation between tertiary institutions.
H1’s idea is to learn from each other or technology spillover. However, this H1 visa was later accused of being the culprit for the decline in US technology supremacy because it shared too much with other countries. In Biden’s tenure this policy will probably remain, but applied selectively to areas deemed sensitive to US national security. This is an opportunity for higher education in Indonesia to collaborate with partners in the US.
Indonesia is still inseparable from US mercantilist policies because it is listed as a country that has a trade balance surplus with the US. Indonesia is included in 16 countries in the watchlist. During Trump’s time, the threats given were no joke, namely the revocation of the generalized system of preferences (GSP) facility. GSP is a unilateral policy that provides discounts on import duties for certain recipient countries. The goal is for the recipient country to develop its economy so that it can become a reciprocal trading partner. For Indonesia, the GSP has existed since 1976 and was lifted in 2013, but was reinstated in 2015 during the Obama administration.
The arrival of the US Secretary of State from the Trump administration to Indonesia some time ago – after visiting India, Sri Lanka and ending in Vietnam – is noteworthy. At the same time, the GSP facility was given back to Indonesia after being “hanged” for a long time. This signals a change in the US geopolitical strategy in dealing with China’s rise.
The strategy of strengthening the economies of these countries that will become future trading partners has started with the Marshall Plan in Europe after World War II to face the Soviet Union. This policy was re-implemented in Japan and South Korea in the 1950s. It is no coincidence that the GSP obtained by Indonesia in 1975 was also part of the containment strategy after the US was forced to withdraw from the Vietnam War in 1975.
Looking for balance
For Indonesia, of course, this is an opportunity to revitalize the exports of the manufacturing industry, especially those that are labor-intensive or semi-labor-intensive. However, Indonesia’s position as a free and active country requires a balancing strategy with other countries, especially China, which until now is also an important trading partner of Indonesia.
Indonesia does not want to be involved with other countries’ feuds and remains friendly with all countries as long as it supports Indonesia’s national interests. From the perspective of trade relations with China, after the 1998 monetary crisis, Indonesia’s economic recovery was helped by its economic growth which created a commodity export bonanza for Indonesia from 2004 to 2012.
The result is an economic growth of between 5.4 and 6 percent more per year which generates the middle class in big cities and secondary cities in Indonesia that can be used as engines of growth in itself. Until now, Indonesia is estimated to have 141 million middle class out of 267.7 million people.
Indonesia has the option of using the domestic market as a stepping stone for exports or as a buffer if the international market is stuck due to a trade war or other escalation of global conflicts. This large population is its own bargaining power in fostering mutually beneficial relations with the US, China and other countries so that Indonesia is not only a market, but also a production / export base and benefits from technology spillovers and market information. (hjtp)
Source: Kompas Daily. Edition: Monday, 16 November 2020. Opinion Rubric. Page 6.