The Art of Trade War: Spurring Investments in Indonesia Amidst the US–China Trade War

Abstract

The US–China trade war creates significant opportunities for developing countries, as global manufacturers need to relocate their production facilities out of China to avoid future tariff hikes. However, Indonesia as the biggest economy in the ASEAN is not experiencing any substantial advantage relative to its neighbors, especially compared to Vietnam. While there is no clarity on how long the trade war will last, it is important for Indonesia to strategize quickly to capitalize the opportunities. This article addresses the question of how Indonesia should strategize through country comparison and analysis of two types of policy competition, namely, incentives-based (IBC) and rules-based competition (RBC). In the short-term, Indonesia should be more accommodating for investors of all sizes and maximize the trade-related investment assistance. In the longer term, Indonesia should prudently open up to trade, improve cooperation between investment and trade functions, and build a positive public mindset for free trade.