Indonesia: Fear of Chinese steel flood

Posted on 02 April 2018

Source: Jakarta Post

Indonesia will unlikely feel any immediate direct impact from the threatened trade war between the United States and China caused by US President Donald Trump unilaterally slapping punitively high tariffs on steel and aluminum imports from China, which could effectively block an estimated US$60 billion worth of Chinese products from entering the American market.

But the risk of an escalated and prolonged trade war between the world’s two largest economies, which happen to be Indonesia’s first- and second-largest export destinations, deserves close monitoring as the dispute could affect the global economy and more Chinese goods might inundate the Indonesian market.

Indonesian steel producers have long complained about what they allege to be unfair competition from dumped steel from China, which because of its much slower economic growth, has been building up an annual steel surplus of more than 100 million tons.

Given this threat, the government may have to postpone its plan to ease import restrictions on steel by shifting the customs check from border to post-border checks.

Even now with import restrictions still in place, steel imports already account for about 55 to 60 percent of our annual steel consumption of around 12 million tons, while the domestic steel industry operates only at 40 percent of its capacity, according to the industry association.

Trade Ministry data shows Indonesia is now the world’s third-biggest net importer of steel and the steel trade deficit last year exceeded $6 billion, the secondlargest after the oil and gas trade deficits.

Before resorting to punitive tariffs, the Trump administration should have first taken its case to the World Trade Organization (WTO), which is tasked with policing the overall system and punishing cheaters. But the Trump administration has accused the WTO of being biased against the US in its trade judgments, saying the WTO has proven to be wholly inadequate in dealing with China’s version of a state-dominated economy that rejects market principles. This could have a negative impact on the credibility and position of the global trade body.

Trump’s ignorance of the WTO and his accusation that the trade body is biased against the US could signal that the US is retreating from leadership on trade from a basic commitment to play by the rules that previous US administrations did so much to create. Such a perception could in the long term prompt other countries to react in kind, thereby undermining the global trading system.

We are still convinced, despite the WTO’s shortcomings, that disputes should be discussed and resolved in a multilateral framework and that unilateral decisions are dangerous. Multilateral negotiations are especially better for such developing countries with weak bargaining positions as Indonesia.

Instead of immediately retaliating against the imposition of the American import tariffs, China needs to look into the allegations that its companies have flooded the US market with metal goods sold at artificially low prices. China also should look into ways of reducing its trade surplus with the US, which was reported to be over $375 billion last year. 

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