pacific money | Economy | Southeast Asia
Indonesia reflects the growing global trend of nations intervening in markets in pursuit of national development and strategic objectives.
Earlier this month, the World Trade Organization (WTO) ruled that the 2018 tariffs the United States imposed on aluminum and steel violated WTO rules. The US, by all appearances, couldn’t care less. According to BloombergU.S. Trade Representative (USTR) spokesman Adam Hodge rejected the ruling, stating that the U.S. “will not cede decision-making about its essential security to the panels of the WTO”. Paul Krugman, writing in the New York Times, wrote a couple of opinion pieces titled “Why America is getting tough on trade” Y “Is this the end of peace through trade?” Krugman’s work was influential in shaping the US approach to free trade in the 1990s, so it should be noted that it is questionable whether that era is over.
It certainly seems that change is in the air. Countries around the world are resorting to what we might call economic statecraft, the use of political tools such as tariffs and export bans to intervene in markets in pursuit of strategic national objectives. It appears that unfettered free trade is being reversed as countries dig deeper and prioritize their own national goals over other considerations. The fact that the United States does not even try to disguise its prioritization of domestic policy goals over WTO rules speaks to how much the international economic landscape has changed.
We are seeing this attitude reflected more and more in Southeast Asia as well. Indonesia is probably the key driver there. Historically, Indonesia has shown a willingness to oppose global free trade conventions and resort to economic nationalism when it can and when it is in the national interest. This trend has intensified in recent months, with blanket export bans on coal and palm oil being used when the government was concerned about high global prices causing domestic shortages.
Most recently, the WTO ruled that Indonesia’s use of export bans on raw nickel ore was contrary to the General Agreement on Tariffs and Trade (GATT). Nickel is a rare commodity that is in increasing demand as it is an important input in battery production. Indonesia, which has the world’s largest nickel supply, has been denying global markets for raw ore in an attempt to force more investment in higher value-added downstream activities such as smelting and eventually battery manufacturing and electric vehicles. The WTO panel ruled that this violated Indonesia’s commitments under GATT.
Indonesia was quick to come up with a response that could easily have come from the USTR. President Jokowi said they would appeal the ruling and declared:: “If we are afraid of being sued and we take a step back, we will not be a developed country.” Indonesia has been consistent with its rhetoric in this regard: Nickel is on Indonesian soil and the government wants to extract as much value from it as it can, whether it conforms to free market principles or not. If that means shaking up markets and rejecting free trade, that’s perfectly fine. What he is saying, in effect, is that free trade is all very well, as long as it does not come at the expense of Indonesia’s own economic development and domestic policy objectives. And these sentiments are repeated throughout the world economy, including in the United States.
Indonesia is so committed to maximizing its return on nickel that the Investment Minister recently suggested that nickel-producing countries should create a poster in the style of OPEC. It seems highly unlikely that this idea has any basis, but it shows how deeply this nationalistic economic drive has penetrated into the upper echelons of Indonesian policymaking, and how little credit is being given to WTO rules that could constrain Indonesian economic development.
And not without reason. Indonesia has influence, and if the United States can choose to ignore global conventions on free trade when it is in its national interest, why shouldn’t countries like Indonesia do the same? I hope we will see a more aggressive form of economic nationalism take hold across the region and the world in the coming years as countries like Indonesia increasingly seek to capture more value in a global economic system that may not have always served their interests. for the max.