A HUGE Fallout Of Trump's Trade Wars Nobody Is Talking About
Geopolitical ricochet effects are beginning to surface
“China cannot allow pivotal nations to raise the drawbridge, while America officially and unofficially cheers them on.”
The spotlight is on US-China, India-Pakistan, business disruption, or how the world is rushing to cut new trade deals with the US. These are all separate rabbit holes, each evolving and elongating at shocking speed.
But now, the ricochet effects of Trump’s trade and economic moves are beginning to surface. One of them was visible from the beginning: a breakdown in the Western alliance, as Washington and Brussels put divorce on the table. Now, another effect has surfaced in Asia.
Speaking in Washington, Indonesia’s economic minister Airlangga Hartarto said that Jakarta has submitted a trade proposal to the United States Trade Representative (USTR) that hinges on two key points. First, Indonesia will lower the trade gap with America and bolster US imports. The second, and the crux of this insight, is that Jakarta will reduce imports from other countries.
New Collision
At face value, this might seem like normal economics. But, in the current geopolitical climate, what Indonesia is doing will anger nations who are on the losing end. And, there is one nation in particular whose exports (to Indonesia) will be cut down: China.
Indonesia is using Trump’s Liberation Day tariffs to further decouple from China. In the process, Jakarta will align closer with Washington in the US-China economic war.
Last year, Indonesia took a range of actions against China.
From the insight “China's Fast Fashion Sparks Tensions Worldwide”:
The government has tabled a 200% tax on cheap imports targeting Chinese fast fashion and other low-cost goods. This comes after Indonesia blocked TikTok’s e-commerce platform.
Now, Indonesia’s communications minister Budi Arie Setiadi, has instructed Apple and Google to ban Temu from the App stores. This is a preemptive move, as there is no activity in Indonesia in the Temu app. Add to this, Budi has warned that Indonesia will block any Temu investment into the local economy.
Add to this, recently, as Trump has collided with the global economy, Indonesia moved on other fronts that indirectly take on China. At the beginning of March, Indonesia unveiled it was close to signing a new deal with Vietnam to properly demarcate the “exclusive economic zones” (EEZs) of both countries in the South China Sea. These talks have been ongoing for 12 years. If an EEZ agreement is inked, it would put the spotlight back on China’s moves in the area.
But Indonesia’s remark, that it will slow imports from other nations and bolster imports from the US, is more important than any other move taken so far and is likely to jolt Beijing.
What Will China DO?
This is exactly what China does not want to happen (economies being cordoned off to China). This is why Xi Jinping is visiting Southeast Asia, and separately, pushing for a reopening with Europe. The Chinese are sensing an opportunity to boost trade and economic links. But, they are also well aware of a massive risk: if China does not woo states, America will call the shots, and Chinese exports will be blocked.
Beijing will be closely watching Indonesia’s trade recalibration, implicitly targeting the world’s second-largest economy. And, Indonesia is doing this before Trump puts real ultimatums in front of nations to control the flow of Chinese goods within their borders in exchange for tariff relief, an idea that US officials are discussing with dozens of governments.
What Indonesia is doing represents a new battlefield.
China cannot allow pivotal nations to raise the drawbridge, while America officially and unofficially cheers them on. The Chinese will not sit quiet, as the US-China economic war spills over beyond a purely Washington-Beijing fight, and begins to include the actions of other nations. The Chinese have two options, none of which are mutually exclusive.
First, China could attempt a new charm offensive, similar to what is taking place with Vietnam or Italy, the latter of which may be given control of CK Hutchison ports, which were (almost) given to BlackRock (America), before being sidelined by Beijing. For countries like Indonesia, China may move to support local, sovereign goals like protecting local companies. China could propose “minimum prices,” echoing what is happening in Europe, where Brussels has clawed back tariffs on Chinese EV imports and is eyeing base prices that Chinese cars will be sold for to ensure fair competition with European EVs. Similarly, to satisfy Indonesia’s concerns about cheap Chinese products flooding the local market, China may force “base prices” for fast fashion and other goods.
Second, China could retaliate.
There is limited time for China to draw nations into its orbit. If Indonesia rejects China’s offers and stands closer to America, the Chinese cannot operate with “hope” of a future realignment. China could strike back from throttling foreign investment to taking new action in Indonesia’s territorial waters in the South China Sea. However, China’s punches are not black and white.
For example, Indonesia has the world’s largest nickel reserves and is the world’s third-largest exporter. Over the past decade, China has invested $65 billion in Indonesia’s nickel industry, giving Beijing a shocking 90% control over existing mines and smelters. Such exposure and reliance will play a huge factor in what China does, especially after the UK nationalized its national steel firm, owned by China.
Conclusion
Sometimes, big changes take place with the simplest words. That is what is happening with Indonesia. But, Indonesia will not be the last country to act this way. This means China is facing a triple fight: with the US, with countries like Indonesia, and with the next states that slow trade with China.
And all of this is taking place before Washington plays mid-tier cards, let alone the nuclear cards. This pours cold water on some analysis that America is in a weaker position or that Trump will lose the fight.
Of course, Jakarta is not likely to just temper imports from China. To appease the US, it could also restrict goods from India, Japan, and South Korea, all of which could create new friction between those capitals and Washington.
A period of economic reorientation has begun.
As Trump bangs the America First drum, some are more than willing to dance. But in this new jungle of geopolitics, words mean little. Time will tell how far nations go to align with America First, or whether China bangs its own drum, and shifts the environment in its favor.
-ABISHUR/MR. GEOPOLITICS
Mr. Geopolitics is the property of Abishur Prakash/The Geopolitical Business, Inc., and is protected under Canadian Copyright Law. This includes, but is not limited to: ideas, perspectives, expressions, concepts, etc. Any use of the insights, including sharing or interpretation, partly or wholly, requires explicit written permission.
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