The US-China trade war, a defining feature of modern global economic tensions, has sent ripples across international trade, affecting countries far beyond its two primary participants. In 2018, the United States launched a trade war with China, marking one of the most significant and abrupt shifts in U.S. trade policy.
The conflict began when the U.S. imposed an additional 25% tariff on Chinese goods worth approximately $50 billion, prompting China to retaliate with tariffs on goods of equal value. By late 2019, U.S. tariffs had expanded to cover roughly $350 billion of Chinese imports, while China imposed tariffs on $100 billion of U.S. exports. Despite the Phase One Agreement signed by the two countries in January 2020, which slightly reduced tariffs to 16%, the trade war resulted in a substantial decline in bilateral trade and widespread trade diversion to other regions, leading to a reorganization of global value chains (GVC).
The protectionist measures by both countries generated significant uncertainty in global trade policy. In 2024, under Biden’s administration, the conflict intensified with new tariffs, such as a 100% tariff on electric vehicles (EVs), and China’s retaliatory measures, including anti-dumping investigations into U.S. chemical imports. This escalating trade tension shows the broader dynamics of trade protectionism, characterized by tariffs, quotas, subsidies, and other restrictive measures aimed at altering global trade relationships and reducing economic vulnerabilities.
Many developing economies, including Indonesia, rely heavily on the United States and China as key export markets and integral hubs in global industrial chains and networks. The US-China trade war has had significant ripple effects on these countries, primarily through its impact on global supply chains. The sharp increase in tariffs has driven up production costs, disrupted trade flows, and prompted shifts in trade contracts and investment decisions. Given the central role of the US and China in international trade, the escalating trade tensions have raised concerns about the deterioration of global trade flows, which poses a particular challenge for emerging economies that depend on multilateral trade cooperation.
Indonesia, with its substantial commercial ties to both the US and China, has experienced both opportunities and challenges. It is a major exporter to the US market and a key supplier of natural resources to China, including coal, iron, and steel. The trade war has redirected global value chains, leading multinational corporations to relocate production facilities to Southeast Asia to mitigate risks. By mid-2020, seven multinational companies had moved operations to Indonesia, reinforcing its position as a nearshoring destination alongside Vietnam and Thailand.
Indonesia’s bilateral trade with China surged during this period, with exports increasing from USD 27.9 billion in 2019 to USD 53.7 billion in 2021, driven by mineral fuels, iron, and steel. Imports from China also rose, indicating deeper economic integration. Similarly, Indonesia’s exports to the US grew from USD 17.8 billion in 2019 to USD 25.6 billion in 2021, supported by palm oil, frozen shrimp, and prawns. Despite the trade tensions, Indonesia maintained a positive trade performance with both nations, benefiting from trade diversion as China sought alternative suppliers for its domestic industries.
However, Indonesia’s export growth has largely served the domestic markets of the US and China rather than contributing intermediate goods to GVCs. This limits the country’s ability to fully capitalize on the trade war’s benefits. To address these challenges, Indonesia has pursued broader commercial cooperation, particularly with developing economies in South Asia and Africa. Strengthening ties with countries like Kenya, Egypt, South Africa, and Nigeria has created alternative markets and reduced reliance on the US and China.
Overall, Indonesia has simultaneously benefited from and adapted to the trade war’s impacts. By leveraging opportunities for trade diversion, expanding into new markets, and enhancing regional cooperation, Indonesia continues to navigate the complex dynamics of the US-China trade conflict while striving for sustainable economic growth.
With the upcoming Donald Trump’s return to office, the US-China trade war is expected to persist, prolonging its effects on global trade dynamics. For Indonesia, while the trade war has presented opportunities, significant challenges must be addressed. As Indonesia has benefited from trade diversification and investment inflows, its heavy reliance on commodities exposes it to price fluctuations triggered by trade disputes. Additionally, global trade uncertainties and capital outflows during escalations have placed pressure on the Indonesian rupiah, highlighting economic vulnerabilities.
In addition, Indonesia faces stiff competition from regional peers like Vietnam and Thailand. These countries are often preferred due to their more developed infrastructure and streamlined regulatory environments. In contrast, Indonesia’s regulatory framework, high logistics costs, and underutilized special economic zones continue to hinder its ability to fully capitalize on these shifts.
To maximize the opportunities presented by the prolonged trade war, the government must prioritize addressing internal challenges, including regulatory inefficiencies, infrastructure gaps, and over-reliance on commodities. A strategic focus on industrial and economic diversification is essential for Indonesia to strengthen its position as a competitive regional player and navigate the uncertainties of prolonged global trade tensions.
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