Indonesia’s Finance Minister Sri Mulyani Indrawati warned that potential US tariffs could reduce Indonesia’s economic growth by 0.3 to 0.5 percentage points.

At the ASEAN finance ministers and central bank governors meeting, she emphasized the importance of a 90-day pause on tariff implementation as a chance to find solutions and reduce risks.

To address the issue, Indonesia plans to increase US imports, implement tax cuts, and ease import rules as part of broader economic reforms.

Despite the concerns, officials said the overall impact would be limited due to Indonesia’s strong domestic market.

Sri Mulyani also stressed regional cooperation among ASEAN nations and highlighted prudent domestic spending to support growth.

🔗 Source: Reuters

🧠 Food for thought

1️⃣ ASEAN economies face varied impacts from US tariffs, prompting regional coordination

While Indonesia projects a 0.3-0.5 percentage point reduction in growth, the impact across ASEAN varies significantly by country and export dependency.

Vietnam faces the steepest potential growth reduction at 1.2 percentage points, followed by Thailand (0.8), with Malaysia and Indonesia both at 0.2 percentage points according to economic forecasts 1.

The collective economic weight of the ASEAN-6 economies (Indonesia, Thailand, Singapore, Philippines, Vietnam, and Malaysia), with their combined $3.7 trillion GDP in 2023, gives them significant leverage in negotiations 1.

This explains why Malaysia is coordinating a collective ASEAN response to negotiate with the US for lower tariffs, rather than countries attempting to navigate these challenges individually 2.

Indonesia’s relatively modest projected impact reflects its lower US export dependence, as exports to the US account for only 2.2% of Indonesia’s GDP, providing some insulation from tariff shocks 3.

2️⃣ US tariff policies create historical parallels with concerning precedents

The current wave of US tariffs would raise America’s effective tariff rate to 22.5%, the highest level since 1909, marking a dramatic shift in US trade policy 4.

This approach parallels previous protectionist episodes with troubling outcomes, particularly the Smoot-Hawley Tariff Act of 1930, which economists widely recognize as having worsened the Great Depression through retaliatory trade measures 5.