US and China hurt themselves with tariffs, Indonesian minister says

Source: Reuters

 

JAKARTA — The U.S. and China will harm their own economies by escalating the trade spat between them, Indonesian Finance Minister Sri Mulyani Indrawati said Thursday, though she showed confidence that her archipelago nation can withstand the ripple effects from the dispute.

“One of the downside risks seen as being very big and significant is this U.S.-China trade war,” Indrawati said during a press conference at the Jakarta Foreign Correspondents Club. The U.S. in early April announced it would impose tariffs on around 1,300 items imported from China, worth an estimated $50 billion. Beijing immediately retaliated with new import taxes on $50 billion worth of U.S. goods.

The finance minister, who also served as the World Bank’s managing director before taking her current post for the second time, said the scale of the tariffs “is not the point.” The real issue is that these actions by Washington and Beijing are “self-wounding their own source of growth,” she said.

China, despite taking steps to transform its economy to a model driven more by domestic consumption, remains dependent on exports for growth, Indrawati said. For the U.S., household consumption supported by cheap import goods drives the economy, and the finance minister said the tariffs will damage this propensity by consumers to spend.

“[The tariff dispute] is going to be something like — you are punching your enemy, but actually you are punching your own economy,” she said. “The question that many are going to ask is how long [will it take for] the leaders to realize that, and realize this is not going to serve the two countries.”

Continued escalation of U.S.-China trade tensions could harm growth in developing parts of Asia this year, the Asian Development Bank warned in a report published Wednesday.

“[Further] actions and retaliation against them could undermine the business and consumer optimism that underlies the regional outlook,” the ADB said.

But Indrawati displayed confidence in Indonesia weathering the storm.

“Indonesia, among the [Association of Southeast Asian Nations], we are a country that is still dominated by our domestic demand,” she said. “If you compare to Malaysia, Thailand or even Vietnam, those countries actually have an export [contributing more to gross domestic product] than Indonesia.”

The value of exports of goods and services as a percentage of GDP totaled 19.1% for Indonesia in 2016, the World Bank says, far less than the 67.7% for Malaysia, 68.9% for Thailand and 93.62% for Vietnam.

This greater focus on exports explains why growth jumped during the past year for Malaysia, Vietnam and Thailand amid the global economic recovery, Indrawati said.

“Some analysts were saying, ‘Why is Indonesia [‘s economy] not jumping?'” the finance minister said. “But that will also save Indonesia when the global and regional bickering is happening, because we have our domestic demand to support the performance.”

Indonesia also benefits from Beijing’s recent effort to ease the trade tensions. Chinese President Xi Jinping unveiled a broad set of measures Tuesday to open the country’s economy, including lower import tariffs on cars and relaxed restrictions on foreign ownership in the automotive sector.

For the protection of intellectual property rights — a major concern of the U.S. and other countries — Xi promised that China will “significantly raise the cost for offenders and unlock the deterrent effect of laws.”

China serves as Indonesia’s top trade partner, accounting for 12% of the archipelago’s total exports and 23% of imports.

Source :

Asia Nikkei

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