“The New Economic Order”: A New Chapter in the Global Economy, Tariff Wars and Their Implications for the Indonesian Economy.

Over the past 50 to 60 years, globalization has become the foundation of the world. After World War II, many countries agreed to create a "global rule base" that would allow for relations between countries based on rules and certainty. Thus, global institutions such as the UN, WTO, IMF, and World Bank were established, multilateral institutions aimed at maintaining relations between countries based on agreed-upon rules.

However, President Trump's second term, known as Trump 2.0, has brought significant changes. In fact, it could be called "The New Economic Order," a global economic order that no longer follows the established rules of nearly 50 years. Unilateralism, or unilateral action, currently carried out by the United States as a superpower, has become dominant because it can regulate according to its own will and interests.

"Unilateralism has become the rule of the game. While the United States has been a promoter and supporter of various forms of multilateralism, it is now abandoning multilateralism and adopting a unilateral approach," explained Finance Minister Sri Mulyani at the "Our State Budget" press conference at the Djuanda Building, Ministry of Finance, Jakarta, Thursday (March 13, 2025).

This change in American policy has significantly impacted the global trade system, leading to unilateral tariffs. Previously collaborating countries within international trade agreements now face protectionist policies that prioritize domestic interests. Meanwhile, other major economies, such as China, Canada, and Mexico, have begun responding to this policy by imposing retaliatory tariffs. This will undoubtedly further intensify global uncertainty. Tensions in international economic relations are also evident in the absence of many countries from international forums such as the G20 in South Africa.

"Compare that to the atmosphere during our G20 presidency. Even amidst the war in Ukraine, we were able to bring all G20 members together. A change in just three years has transformed the world order," explained the Minister of Finance.

The impact of the trade war on the Indonesian economy

The trade war triggered by the United States' unilateral tariff policy in 2025 has created tremendous uncertainty in global markets. Indonesia, a country with a trade surplus with the United States, now faces the potential impact of tariffs imposed on a number of imported products, such as steel, aluminum, and other commodities. Indonesia, which ranks 15th in the world with the largest trade surplus with the United States, must be vigilant about the potential impact of this policy.

While Indonesia maintains economic relations with major economies, the impact of these trade tensions will impact the manufacturing and digital sectors, which are crucial pillars of the Indonesian economy. Furthermore, fluctuating tariffs can increase production costs, which in turn impacts the competitiveness of Indonesian industry in the global market.

"While we usually know military warfare, this is a trade war. So, the battlefield is the economy. This is language that says there's no peace here. If you impose high tariffs, if you retaliate, there will be reciprocity," said the Minister of Finance.

This tariff war will undoubtedly pose various threats, including recession, inflation, and even stagflation. The economy will weaken but prices will rise due to this tariff war.

Commodity price fluctuations and their implications for the Indonesian economy

The trade war has also increased commodity price fluctuations. Since the end of 2023, commodity prices have experienced a decline, particularly since the war between Russia and Ukraine. Various key commodities, such as coal, oil, and gas, experienced significant declines. During the Russia-Ukraine war, commodity prices soared. However, this trend only lasted about 18 months, and since the end of 2023, they have been declining. Disruption and uncertainty caused by the trade war have further driven commodity prices down sharply, leading to economic weakness, particularly in countries involved in the war.

"So, if we look at the year-on-year coal price, which has been corrected downwards since 2023, compared to 2024, which was already low, it's still down 12.6 percent year-on-year. From January to February, it was down 16.5 percent. So, the downward trend is still evident. It's now approaching USD 100 per metric ton. Imagine, three years ago, the price was four times that," said the Minister of Finance.

Not only coal, but oil prices have also fallen from a high of over USD 90 per barrel in 2023 to USD 69.3 per barrel currently. This decline in oil prices is also influenced by the economic downturn in major economies, which are beginning to feel the impact of trade wars and tariff policies. However, there is still good news from one commodity that is showing a positive trend: CPO. Compared to last year, CPO prices have increased by around 27.8 percent year-on-year. This is certainly a breath of fresh air for Indonesia's plantation sector, which is also a source of foreign exchange for the country.

Good news: manufacturing is resilient, the economy is growing

Despite the tense global economic climate and environment, there is still good news from Indonesia's manufacturing sector. This sector has demonstrated considerable resilience, despite major economies such as Europe, China, and Vietnam experiencing contractions. Indonesia has managed to maintain positive manufacturing sector growth at 53.6, indicating expansion.

"Manufacturing activity remains expansive to date. We experienced a dip yesterday, but then rebounded very quickly. This demonstrates the considerable resilience of Indonesia's manufacturing sector," said the Minister of Finance at an Economic Discussion with the President of the Republic of Indonesia titled "Strengthening National Economic Resilience."

Indonesia's manufacturing sector, which dominates exports such as electronics, base metals, and processed foods, has recorded stable growth, with some sectors even experiencing significant export increases. One of the most affected sectors is iron and steel, which has seen a decline in exports due to high tariff policies from major economies. However, other sectors, particularly labor-intensive sectors such as textiles and footwear, continue to show strong growth.

Despite the current global economic uncertainty, the Minister of Finance remains optimistic that Indonesia can maintain a healthy economic growth rate. Indonesia's economic growth in 2024 is projected at 5.03 percent, a remarkable achievement amidst global economic turbulence.

Source: Ministry of Finance - Financial Media

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