Jakarta. Consulting firm McKinsey recently said that US President Donald Trump’s tariffs might not deal a direct fatal blow to the Indonesian economy, but Jakarta needed to act fast if it wished to seize the opportunities that might arise from the trade reconfiguration.

Trump is planning to slap steep tariffs on nearly all of the US’ trading partners, Indonesia included. Trump intends to impose 32 percent import tax on Indonesian goods -- a plan that is now on hold until early July. Trump also added fuel to the fire by exempting China from this pause, and raising the tariffs to 145 percent. An initial baseline 10 percent tariff is already in place.

Amid this tariff fiasco, Indonesia still intends to unlock a high-income status by its centennial in 2045. But a McKinsey report wrote that Indonesia would need to push its gross domestic product (GDP) growth from an average 4.9 percent to a compound growth rate of 5.4 percent over the next decades. In a recent news conference, McKinsey spoke to reporters on the tariff’s impact on the economy, citing that Indonesia luckily did not depend much on the American market.

“Indonesia’s direct trade exposure with the US is relatively less compared to other ASEAN economies, standing at 2-3 percent of the GDP. Vietnam’s [exposure] is between 20 to 30 percent of their GDP, while Malaysia’s is around 10-15 percent,” Jeongmin Seong, a partner at Shanghai’s McKinsey Global Institute, told reporters in Jakarta.

“So the [tariffs’] direct impact is relatively less [for Indonesia].”

Even so, Indonesia still needs to watch out for its indirect impact. The import tax hikes could push certain economies into a recession, triggering a downturn in global demand, according to Jeongmin. Even so, Trump’s tariff blitz is bound to speed up the shifts in global trade -- something that was already taking place before the tariff uncertainty kicked in. 

Between 2017 and 2024, the world witnessed a 7 percent decline in the so-called geopolitical distance of trade, according to a McKinsey report. Countries favor trading with more geopolitically aligned partners. The same document indicates that the US reorients its trade of manufactured goods from China to ASEAN and Mexico. China is also transforming into an upstream supplier of intermediate inputs of ASEAN, which will eventually produce finished goods for the global market and the US. Jeongmin said that Indonesia fell somewhere in the middle, meaning it is on the opposite end of the geopolitical spectrum. While this should give the resource-rich Indonesia flexibility in global trade, but this does not automatically mean money for Jakarta.

“When countries and companies diversify, they tend to look at who the next best supplier is. If you are not on the radar of the global value chain and trade network, you don’t necessarily benefit [from this situation]. Companies in Indonesia need to be quite aggressive to be part of the global value chain and turn this into an opportunity,” Jeongmin said.