Joe Biden’s Era and Indonesia
Without realizing it, whether the US president comes from the Republican Party or the Democratic Party, the world alliance has shifted.
After going through a long and tense vote count, Joe Biden from the Democratic Party was finally declared the 46th president-elect of the United States, defeating incumbent President Donald Trump of the Republican Party.
The final vote tally showed Biden pocketed 306 electoral votes, above of the 270 electoral votes needed to win, while Trump won 232 electoral votes. At present, the recount of voting results in Georgia is still ongoing, but so far Biden is still ahead by around 15,000 votes. Even if Trump wins in Georgia, the additional 16 electoral votes from this state will not change Biden\'s victory.
The question is how will this situation economically impact Indonesia.
Shift in world alliance
Without realizing it, whether the US president comes from the Republican Party or the Democratic Party, the world alliance has shifted. A world with only one superpower will also change, returning to the situation in the Cold War era, which showed two opposing camps, the US vs the USSR, which lasted from the 1950s to the late 1980s.
This has been detected since the mid-1990s with the publication of the article "The Rise of China as an Economic Power" (Goodhard and Xu, 1996). The US strategy during the Cold War was using China as a counter balance.
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This strategy began with President Nixon\'s visit to China in 1971. Nixon\'s visit marked the start of China\'s economic openness since the 1980s, which was led by Deng Xiao- ping who took over from Hua Guo Feng in 1980. Deng\'s economic reforms resulted in China’s two-digit economic growth for nearly two decades.
Recently, the International Monetary Fund (IMF) acknowledged that with the purchasing power parity (PPP) calculation method and based on the size of the economy (GDP size), China has surpassed the US. This raises concerns that the US\'s dominant position in a world with one superpower will soon be over.
Since the era of President Barack Obama\'s administration, the US has observed this trend. Perception arises that in terms of trade balance surplus between the two countries, China benefited more from taking advantage of the openness of the US market.
However, new tensions surfaced during the Trump administration. The policies adopted for foreign trade are more like mercantilist, seeing bilateral trade in a micro-surplus approach. The US urged China to buy more of its agricultural products and/or open up the Chinese market to US companies.
Some of the top officials in the Obama administration are likely to rejoin the Biden administration, either in an advisory role or as top ranking officials, so that in general the colors of his policies will not be too different from those of President Obama.
US foreign policy will not be as lowly and violent as in Trump\'s era, but in general it will not shift too much, especially for international economic relations, especially with China. The trade war with China is likely to continue in a quieter manner in the form of multilateral cooperation with other countries.
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The concept of the Trans-Pacific Partnership, which the US decided to withdraw in 2017, may be revived. In a narrower geographic scope, the US will optimize ASEAN to coordinate with Southeast Asian countries.
The attention to human rights will increase more than Trump\'s, and this will affect its policy on defense cooperation with other countries.
To increase its prestige in the eyes of the world, the US will rejoin the World Health Organization (WHO) and Global Climate Agreements, such as the Paris Climate Accord, which will form the basis for the US to interact with its partner countries. The attention to human rights will increase more than Trump\'s, and this will affect its policy on defense cooperation with other countries.
Indonesia\'s opportunities and challenges
In a trade war, the US government may not be able to help with financial incentives, but it will facilitate using the diplomatic channels of US companies which, for business reasons as well as the security of US companies and affiliates, will relocate from China.
Last year, Vietnam received the largest reallocation. However, the principle of not putting all the eggs in one basket will also put other countries, including Indonesia, on the radar. Premium electric carmaker Tesla\'s talks are just one example. This opens up the potential for supply chain relocation and/or development of linkage with Indonesia because the spare parts industry in Indonesia is among the strongest in Indonesia after the food industry.
In terms of export and import values, the US is Indonesia’s fourth largest trade partners after China, Japan and Singapore. Interestingly, Indonesia’s trade balance with the US is almost always a surplus. In 2019 the surplus was recorded at US$8.5 billion, while with China it was US$17 billion deficit.
One of Biden\'s programs is Buying America, so it\'s not too surprising that there will be a demand to buy more products from the US to balance the trade balance, and this is repeating what Trump has already done. Environmental and labor issues will also concern Biden. For Indonesian palm oil exports, for example, the issue of sustainable palm oil may receive more serious attention than during the Trump administration.
The Biden administration will relax policies relating to immigrants, including visas for students from abroad. During the Trump administration, the US higher education industry struggled with fewer applicants from abroad.
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At this time of the pandemic, Trump\'s policy of not granting residence visas to international students who only took online courses has made the financial balance of universities more difficult. In addition, the H1 visa for experts, which is restricted, hinders cooperation between tertiary institutions.
Indonesia is still inseparable from the US mercantilist policy because it is among countries that have a trade balance surplus with the US. Indonesia is included in 16 countries in the watch list. During Trump\'s time, the threats were no joke, namely the revocation of the generalized system of preferences (GSP) facility. GSP is a unilateral policy that provides discounts on import duties for certain recipient countries. The goal is to help the recipient countries develop their economies so that they can become reciprocal trading partners. For Indonesia, the GSP has existed since 1976 and was lifted in 2013, but was reinstated in 2015 under the Obama administration.
The visit of the US Secretary of State from the Trump administration to Indonesia some time ago -- after visiting India, Sri Lanka and ending in Vietnam -- is noteworthy. At the same time, the GSP facility was given back to Indonesia after being "on hold" for a long time. This signals a change in the US geopolitical strategy in dealing with China\'s rise.
It is no coincidence that the GSP obtained by Indonesia in 1975 was also part of the containment strategy after the US was forced to withdraw from the Vietnam War in 1975.
The strategy of strengthening the economies of the countries that will become future trading partners has begun with the Marshall Plan in Europe after World War II to face the Soviet Union. This policy was re-implemented in Japan and South Korea in the 1950s. It is no coincidence that the GSP obtained by Indonesia in 1975 was also part of the containment strategy after the US was forced to withdraw from the Vietnam War in 1975.
Looking for balance
For Indonesia, of course, this is an opportunity to revitalize the exports of the manufacturing industry, especially those that are labor-intensive or semi-labor-intensive. However, Indonesia\'s position as a free and active country requires a strategy of balancing with other countries, especially China, which until now is also an important trading partner of Indonesia.
Indonesia does not want to get involved in other countries\' feuds and remains friendly with all countries as long as they support Indonesia\'s national interests. From the perspective of trade relations with China, after the 1998 monetary crisis, Indonesia\'s economic recovery was helped by China’s economic growth which resulted in a bonanza of commodity export for Indonesia from 2004 to 2012.
The result was (Indonesia’s) economic growth of between 5.4 and 6 percent more per year, which generated middle class in big cities and secondary cities in Indonesia that can be used as engines of their own growth. Until now, Indonesia was estimated to have 141 million middle class people out of 267.7 million people.
Indonesia has the option of using the domestic market as a basis for exports or as a buffer if the international market is stuck due to a trade war or other escalation of global conflicts. The size of this population is its own bargaining power in fostering mutually beneficial relations with the US, China and other countries so that Indonesia is not only a market, but also a production/export base as well as benefiting from spillovers of technology and market information.
Ari Kuncoro, Rector of the University of Indonesia