(Bloomberg) -- US President-elect Donald Trump’s proposed tariffs are expected to have a relatively limited impact on Indonesia, compared to its Asian neighbors that are more reliant on exports, according to analysts.
The trade impact on Indonesia will likely be muted, while peers like Singapore, Thailand and Malaysia could be more vulnerable, Moody’s Analytics economists Denise Cheok and Jeemin Bang said in an emailed response to questions on Thursday.
Domestic consumption accounts for more than half of Indonesia’s output, powering the economy to a relatively consistent growth of about 5% in the last decade and shielding it to some extent to external developments. However, Indonesia will need to look at other growth engines, such as exports and investments, since Indonesia’s President Prabowo Subianto is gunning for 8% expansion.
Indonesia could still see a knock-on effect if US tariffs worsen China’s already-weak domestic market. “Key commodity exports such as coal and palm oil are expected to be impacted through a dip in demand from China, Indonesia’s biggest export partner,” the Moody’s Analytics economists said.
That could open up opportunities for Indonesia to diversify and ramp up its shipments to the US, despite Trump’s threat of a universal tariff, said Andry Asmoro, chief economist at Indonesia’s largest lender PT Bank Mandiri. The sectors that may benefit include light electronic devices, furniture and textiles, he said.
A business chamber expects that Trump’s trade war could spur further foreign direct investment into Indonesia from companies looking to relocate production from China. Regional cooperation could help position Southeast Asia as an alternative manufacturing hub, said Shinta Widjaja Kamdani, chairperson of the Employers’ Association of Indonesia.
However, Moody’s Analytics was less optimistic about Indonesia’s chances. “Southeast Asian economies that benefit from supply chain diversification tend to have a robust manufacturing sector, particularly in electronics,” the economists said.
“Indonesia in comparison, is more commodities-based, and will therefore not benefit as much from the shift in supply chains,” they added.
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