Indonesia Bracing For Flood Of Rerouted Chinese Exports

The idea was hastily shot down by other ministers who were wary of upsetting China, inviting retaliation from one of the nation's leading investors. But local calls for protection from cheap Chinese goods have persisted.

Those calls have come from the textiles sector in particular, one of the nation's largest domestic employers.

They became more pronounced after major producer Sritex declared bankruptcy amid the closure of several other factories that could compete on price with China's cheaper wares.

Chinese goods are often blamed with claims of rampant smuggling to evade the hefty duties Indonesia imposes on such goods. In December, President Prabowo Subianto, who has pushed the government to save Sritex, took a hard line on the issue.

“Textile smuggling threatens our textile industry, threatens the lives of hundreds of thousands of our workers,” he declared.“But if it threatens the lives of the Indonesian people, if necessary, we will sink those [smuggling] ships!” he said firmly.

If only it were so simple. Before Prabowo took office, former Coordinating Minister Luhut Binsar Pandjitan revealed a Chinese proposal to establish new Chinese textile factories in Kertajati, Majalengka, with the potential to employ 108,000 workers.

An apparent separate proposal led by Chinese investors sought to establish textile factories across Subang, Karawant, Brebes, Solo and Sukhoharjo, spanning the entire textile production chain from midstream to upstream processes and with an eye on exports.

Whether Chinese-owned factories in Indonesia will be able to elude the 145% tariffs on Chinese goods is an open question as Trump intensifies his trade war by calling on nations to impose their own“secondary tariffs” on Chinese producers.

Most of the goods that Indonesia exports to the US are low-end manufactured goods. In 2024, Indonesia exported $26.3 billion worth of products to the US, according to BPS. Manufactured products like electronics, garments and footwear made up the majority of those shipments.

Demand for such goods in China from Indonesia is fairly low. Indeed, that same year, while Indonesia exported some $70.7 billion worth of goods to China, 90.9% were commodities like iron and steel, coal, nickel, palm oil, paper pulp, foodstuffs and wood, vegetable and animal products.

All this may complicate China's attempts to seize upon America's aggressive trade demands to position itself as a reliable and lucrative alternative market.

“In the face of shocks to global order and economic globalization, China and Malaysia will stand with countries in the region to combat the undercurrents of geopolitical confrontation, as well as the counter-currents of unilateralism and protectionism,” declared Xi at a dinner with Malaysian Prime Minister Anwar Ibrahim.“Together, we will safeguard the bright prospects of our Asian family,” he added.

Indonesia, as the largest country in the region, forms part of these plans. While Xi did not visit Jakarta during this three-country swing through the region, he spoke with President Prabowo, who has already visited China twice since his election last year.

On April 21, China's Foreign Minister Wang Yi said at a press conference with his Indonesian counterpart that China and Indonesia should oppose“any form” of unilateralism and trade protectionism.

The two sides should jointly accelerate regional economic integration and maintain the stability of industrial chains and supply chains, he said.

But as Indonesia looks to deal with Trump's tariff shock, China may not be its partner of choice. The idea that China's tariff troubles could ultimately be Indonesia's gain is already filtering down, despite the reciprocal 36% Indonesian goods now face.

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Mari Pangestu, a veteran technocrat newly appointed as the president's Special Envoy for International Trade and Multilateral Cooperation, cited Japan, South Korea and Australia as the best target markets to absorb Indonesian goods usually sold to America.

Meanwhile, negotiations for a trade deal with the European Union seem to be gathering new momentum, talks that have stalled on various contentious issues ranging from palm oil cultivation techniques to resource nationalism since 2016.

There has even been some talk that Ind-nesia might join the Trans-Pacific Partnership – an 11-country trade pact including a cluster of Southeast Asian countries alongside Japan, Australia and Canada.

With regard to China, however, the focus has been different. Looking to reassure pressured local businesses, Pangetsu has said trade liberalization measures, when implemented, will be accompanied by plans to improve local anti-dumping laws, with the implicit target being Chinese goods.

Pangetsu has suggested Indonesia could actually benefit from the trade war by encouraging companies manufacturing for the US market to relocate from China to Indonesia.

Back at the textile expo, Kasikin, an independent wholesaler, is already thinking along these lines.

“Since the pandemic, our exports have been small,” he reflected. But“I heard from a friend in this trade war America wants to hit China. There could be a profit for Indonesia – reindustrialization. China could be forced to open factories here.”

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