Indonesia Faces Competitive Pressure from Vietnam
A single percentage point difference in the new US tariff rates for Indonesia and Vietnam has put Indonesian businesses on high alert. Both ASEAN nations successfully negotiated significant reductions in punitive tariffs from the US government. Vietnam’s tariff was slashed from 46% to 20%, while Indonesia’s tariff saw a drop from 32% to a more favorable 19%. However, this slight advantage does not grant Indonesia the luxury of complacency, as noted by the country’s business associations. Shinta Kamdani, chairwoman of the Indonesian Employers’ Association (Apindo), cautioned that the “devil is in the details,” and that Vietnam remains a formidable competitor, particularly in key export sectors like apparel and footwear. Despite the major tariff reduction from the original 32 percent, the narrow gap with Vietnam, which already exports a far greater volume of these goods to the US, necessitates a strategic and cautious approach from Jakarta’s businesses.
The Battle for Competitiveness and Transhipment Clauses
In response to the competitive pressure from Vietnam, Indonesian business leaders are urging for swift action on internal cost structures. Kadin’s chief, Anindya Bakrie, emphasized the need for Indonesia to “deregulate and cut costs,” focusing on becoming more competitive in crucial areas such as logistics, energy, and labor. This call to action is supported by data indicating that Indonesia’s logistics costs, while high at 14% of its GDP, are still better than Vietnam’s 18%, and the country aims to further reduce its costs to 8% by 2030. Furthermore, the two nations’ trade deals with the US include different transshipment clauses. While the US specified a 40% tariff on transshipped goods for Vietnam, the details for Indonesia were not specified, potentially giving Jakarta a strategic edge by allowing for more flexibility in its trade routes. This difference could become a crucial factor in the coming years.
Government Engagement and Future Outlook
The Indonesian government is proactively engaging with the business community to navigate the implications of the new trade agreement. Senior minister Airlangga Hartarto has already held meetings with key business associations, including Kadin and Apindo, to provide them with the latest updates and ensure a unified approach. This collaborative effort is essential as Indonesia now works to finalize the details of the agreement. The country is currently in the process of drafting a joint statement with the US, which will outline the technical specifics and officially determine when the new 19% tariff will take effect. This forward-looking strategy, which involves both internal cost-cutting measures and careful negotiation of trade clauses, demonstrates Indonesia’s commitment to leveraging the new trade terms to boost its exports and solidify its competitive position in the global market.
