Gambir Trade Talk: The Impact of Decoupling and Friendshoring Phenomenon on Indonesia’s Foreign Trade Performance
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Jakarta, 15 May 2024: Gambir Trade Talk, organised by the Ministry of Trade of Indonesia, convened to discuss the ramifications of the decoupling and friendshoring phenomenon on Indonesia’s foreign trade performance. Dr Kasan, Head of the Trade Policy Agency, highlighted the significant trade deficit with the United States and the growing reliance of US suppliers on Mexico. Consequently, Indonesia must address the friendshoring preference of the United States, which sees an increasing trade balance with the Republic of China. Dr Kasan stressed the urgency of responding to this decoupling and friendshoring dynamic.
The first panelist, David Christian, Research Associate at ERIA, provided insights on five global trends that underpin the recent rise in technological decoupling and friendshoring. From an ASEAN perspective, these phenomena are anticipated to result in both trade creation and trade diversion, impacting trade, investment, and technology transfer. ASEAN stands to benefit from production relocation, particularly in the semiconductor industry, due to factors such as its large consumer market, strategic geographical position, lower labour costs compared to China, and potential for production integration within the region. Regulations supporting investment and high-quality human capital are crucial for ASEAN to leverage opportunities arising from decoupling and friendshoring.
The second panelist, Dr Kiki Verico, Associate Professor at the University of Indonesia, emphasised the importance of improving Indonesia's Total Factor Productivity to enhance its competitiveness in the global market. Investment in technology, innovation, and human capital can drive productivity and efficiency across various sectors. Strengthening connections to Global Value Chains is also vital for Indonesia's integration into the global production network. Policies promoting trade facilitation, infrastructure development, and skills training can attract more foreign direct investment and facilitate industrial upgrading.
Finally, the third panelist, Dr Mohammad Faisal, Executive Director of CORE Indonesia, discussed the Inflation Reduction Act (IRA) in the United States, which includes provisions related to climate change, such as regulating the clean energy sector and electric vehicles (EVs). However, the enactment of the IRA does not ensure US control over the entire EV supply chain, prompting Chinese EV companies to focus on European and Southeast Asian markets. Dr Faisal emphasised the importance for Indonesia to maintain supply chain linkages with China and foster cooperation with Japan and the Republic of Korea to target the US market.
To conclude, The Gambir Trade Talk shed light on the complex interplay of decoupling and friendshoring phenomena in shaping Indonesia’s foreign trade landscape. It underscored the imperative for Indonesia to adapt swiftly to these evolving dynamics by enhancing productivity, fostering innovation, strengthening trade linkages, and strategically positioning itself within global value chains. Collaboration, innovation, and proactive policy measures will be key in navigating the challenges and seizing the opportunities presented by this rapidly changing global trade environment.
