The Economic Consequences and Strategies of the US-China Trade War on Indonesia: A GTAP Simulation Analysis

Abstract

At present, the world economy is in uncertainty. One reason is that two economically large countries, the United States (US) and China are in conflict and beat the drums of trade war. This is indicated by the policy of US applying tariffs on a number of Chinese products, and then responded very quickly by China by implementing a reply tariff. The aim of this study is to analyze the economic consequences of the US-China trade war for Indonesia and Indonesia's strategies to respond to the trade war. The analytical method used is the Global Trade Analysis Project (GTAP) model. The results of the analysis show that the consequences of the US-China trade war on the found that trade wars between the US and China had an impact on the decline in the total output of goods produced by the US and China by 3.91% and 2.67% respectively. But the economic growth (PDB) of the US and China will be corrected by 0.08% and 0.66% respectively. Exports are still affected by -0.24% with greater implications. It means Indonesia has not been able to take advantage of the situation as a source of economic growth (GDP) projected to only increase by 0.01%. This means that Indonesia also needs to improve, so that investment in the real sector continues to flow profusely even though the China-US trade war has not been completed. The recommendation suggested that in the short-term strategies that need to be done are increasing export competitiveness, encouraging export-oriented industrial productivity, expanding and strengthening domestic and world markets, and controlling the amount of imports. In the longterm strategies include the need to improve the quality of human resources in the trade and industry sectors, utilization of the results of research and development, and infrastructure development is right on target for increased productivity.

Non-Tariff Measures and Competitiveness of Indonesia’s Natural Rubber Export in Destination Countries

“…The trade war between these two countries caused a decline in demand and Rural Development Research for natural rubber due to slowing global production and international trade (Iqbal, Elianda, Akbar, & Nurhadiyanti, 2020;Kapustina, Lipková, Silin, & Drevalev, 2020). Accordingly, it forced Indonesia to diversify the natural rubber market to other countries to reduce the trade war's negative impact on the economy and the performance of natural rubber export (Taufikurahman & Firdaus, 2019;Wangke, 2020). This export market diversification led to a decline in the share of Indonesia's natural rubber in China and the USA, resulting in a relative decline in the competitiveness of Indonesia's natural rubber export.…”

Indonesia’s macroeconomic conditions during United States-China trade war

“…According to the advice, the short-term goals should be to improve export competitiveness, stimulate the productivity of export-oriented businesses, extend and strengthen domestic and international markets, and manage imports. Improving the quality of human resources in the trade and industry sectors, utilizing research and development results, and constructing targeted infrastructure to boost productivity are all part of the long-term strategy (Taufikurahman & Firdaus, 2019).…”

“…The tariff policy became the first assault on bilateral tensions with multilateral consequences, undermining global economic integration and intensifying technological competition (Steinbock, 2018). According to Taufikurahman & Firdaus (2019), the US-China trade war has reduced the overall output of goods produced by the US and China. Aside from that, both the US and Chinese industries (GDP) experienced growth corrections.…”

“…Aside from that, both the US and Chinese industries (GDP) experienced growth corrections. Still, exports are affected by -0.24%, which has more significant repercussions (Taufikurahman & Firdaus, 2019).…”

An Analytical Review of the US-China Trade “War”

“…The high liberalization of Vietnam's trade and the fact that both China and the United States are its main trading partners are the reasons for the great fall. Indonesia's exports continue to be affected by a rate of -0.24 from the trade war (Taufikurahman & Firdaus, 2019). Since the US trade war with China, the European Union and its Member States have been affected by a very small percentage.…”