- 4 months ago
- #woosays
Indonesia has cut a deal with the United States for a 19% tariff agreement, from the feared 32% levy Washington threatened Jakarta with previously. Who came up on top in this deal? In this episode of #WooSays Professor Emeritus Datuk Woo Wing Thye and Melisa Idris explore what Indonesia stands to gain, or lose, after Trump’s “landmark” trade deal with Prabowo.
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00:00Hello, folks. Welcome to another episode of Who Says.
00:14This is where we get real about the US, China, everywhere and everything in between.
00:20Two superpowers, one global story.
00:23This week, we're watching Indonesia who scrambled to cut a deal with the US.
00:28They locked in a 19% tariff agreement along with some major purchase commitments
00:34just days after Trump threatened Jakarta with a 32% levy.
00:40Now, has Indonesia been saved from a bruising tariff hike?
00:46Or has Jakarta, as some have claimed, did Jakarta blink too soon, too fast?
00:52Now, we're going to be exploring this. I'm Melissa Idris.
00:54And with me is Professor Wu Wingtai, who has been studying US-China relations
01:00long before tariffs became headline news.
01:04Prof Wu, welcome to the set today.
01:06It's a nice, it's a different setting for us today.
01:09And I want to get your initial thoughts on the US-Indonesia trade deal.
01:15What do you make of it? Do you think this is a good deal?
01:17Who came out on top, would you say?
01:19I would say it is a case where both sides could announce victory and quite convincing.
01:26And if you wish to really say who blinks first, I would say Trump blinked first.
01:33Oh, really?
01:34Rather than probable war.
01:36You must understand that on April 9th, when Trump suspended his comprehensive tariffs
01:48on the entire world for 90 days, when he suspended it for 90 days, he said we'll have 90 deals
01:56in 90 days. And before the news two days ago about the Indonesia deal, he had only three deals
02:07in hand. One deal is the deal with Vietnam. The second one is a framework agreement with
02:15the United Kingdom and another framework agreement with China. Not as specific as the one, the Indonesia.
02:25So for someone who sells himself as the master of the steel when it comes to making deals, he
02:36doesn't have many deals to show. So he was very eager to report more successes. That's number
02:45one. And Indonesia for him was a success on more than just getting a deal on trade. It's also a success
02:57in bringing Indonesia to what would be seen as within the US circle of France. Because you must understand
03:11that just before Prabowo spoke to Trump, a week before that, Mark Rubio, his secretary of state, the foreign
03:24minister, was in Kuala Lumpur for the ASEAN meetings. He said something very revealing, which is that
03:32Southeast Asia will get a deal better than most other places in the world. He said that partly, of course,
03:44to have a present to give to his fellow foreign ministers. More importantly, his presence is to push
03:58to ensure continued U.S. presence in the South China Sea. And he's in search of allies to support the U.S.
04:10position on the South China Sea as opposed to oppose China. So when he said that we will be more relaxed,
04:22this is a paraphrase, of tariffs on this part of the world, he really mean it. And Trump really meant it.
04:31Which is, you must understand that in between Rubio's announcement that will be easier on this part of the world,
04:40because we want you to be our friends, Trump had also announced that he would put high tariffs
04:49on countries on countries who are members of BRICs. Yes. And that's why he put 50% on Brazil. Right.
04:56Even though Brazil was running, even though the United States was running a balance of payment surplus
05:02against Brazil. So he promised to impose tariffs on countries in BRICs. Okay. If you look at Southeast
05:14Asia, only Indonesia is a member of BRICs. Malaysia is still observer status, hasn't applied for full
05:24membership. Thailand, also observer status, has chosen not to apply for full membership. Right.
05:31So only Indonesia had stepped boldly forward to take full membership. Okay. And was he punished?
05:39He punished? Clearly, he has not been punished. And this is because Indonesia is very important.
05:47ASEAN is very important to the US calculation in confrontation with China. It definitely doesn't
05:56want ASEAN to be on the other side. Okay.
05:59Because of the 70 million people living in ASEAN, 30 million of them live in Indonesia. That's right.
06:08And that is clearly the single most important country and the country with the highest economic
06:15potential in the future. Okay. So when I say Trump blink, it is not only because of the future economic
06:23importance of Indonesia, it's also the present geostrategic importance of Indonesia.
06:30All right. I love everything you've just said. And I think that opens up space for all the things for
06:36us, more things for us to talk about in this episode. But before we get into the geostrategic
06:43importance of Indonesia and this deal for the US, can I ask you about some of the chatter that's
06:49happening locally in Indonesia. So I've kind of fallen into the Indonesia Twitterverse. And some of the
06:59comments coming out from experts and even citizens themselves, netizens themselves, have been comparing
07:06the Indonesian deal to the deal that Vietnam got. So many claim that Vietnam got a bigger, far larger tariff
07:17cut cut, despite Vietnam having a bigger deficit with the US and more transshipment issues. So they're
07:26saying, well, actually, Indonesia didn't get as good of a deal as Vietnam got because the quantum of the
07:32cut that Vietnam or the tariff reduction that Vietnam got was far higher than what Indonesia negotiated.
07:39Is that just dampening, like raining on the parade? Do you think of the Indonesian deal or is that
07:45I actually think of it as a nonsensical objection? The fact that the reduction was so big. The reduction
07:57was so big largely because Vietnam basically committed to limit the re-export of goods from China to the
08:09United States. Vietnam is a lot closer to China than Indonesia. So a lot of it was coming through Vietnam
08:17rather than through Indonesia. So that large number was to, the large cut was because Vietnam has now
08:27committed to severely limited the transit shipment. And furthermore, I think that the Americans have also pressed
08:42on limitations on Chinese investment in Vietnam. And the Vietnamese certainly have agreed to that too.
08:51So the important thing is, if you are going to be hit, who gets hit more?
09:00Well, they are about hit about the same. One is 20 percent, one is 19 percent.
09:0319 is just one percent difference.
09:05But the fact that he makes it one percent lower than Vietnam is really a gesture of,
09:14yes, I think you got a better deal than Vietnam. That is a Trump signal as far as I can see.
09:21Oh, interesting.
09:22And there are of course sectors that would be hurt by this trade deal. There are winners and there are losers.
09:32And what has been identified are all the losers. They have identified the winners on the Indonesia side.
09:39The losers are certainly most likely the food production in agriculture. Food production in Indonesia is mostly for the domestic markets.
09:54Yes. And if you look at the industrial farming of chickens in America, that makes American chickens cheaper than even in Malaysia and elsewhere.
10:09Wow.
10:10So the chicken producers in Indonesia would certainly be hit by this cheaper frozen chicken from the United States.
10:27Then some crops like corn, the US would be able to sell corn cheaper than grown in Indonesia.
10:36But you look at the other winners. The other winners are manufacturing products produced by Indonesia.
10:45Indonesia is a country that is still industrializing. And to climb up the value-added ladder,
10:56it has to keep on exporting higher and higher value-added industrial goods.
11:02Right.
11:02So that path is open now for Indonesia to pursue.
11:08Okay.
11:10Indonesian President Prabowo Subianto, he said that Donald Trump was a tough negotiator in this deal.
11:17And this, I think, is quite interesting because of Trump's persona of being a deal maker.
11:24Talk to me about how you see this trade deal shaping the tone of how Prabowo would deal with the US.
11:36And I want to come back to what you mentioned about the US's circle of friends now expanding to include Indonesia.
11:44Indonesia seems to be in a quite precarious position, being close to China, being in bricks, but now playing ball with the US over these tariff threats.
11:57How do you see this setting the tone for future relations and managing these spheres of influence?
12:03Oh, Indonesia, I think, is leveraging its geostrategic weight to mobilize foreign concession to support its economic development.
12:17Basically, I'm not the business of saying who are my friends, who are my enemies.
12:22Everyone is my friend.
12:24And to deliberately say that I belong to one camp or the other camp is nonsensical because on some issues, I'm with one group.
12:37On other issues, I'm not with a particular country.
12:43Like on Palestine, Indonesia is certainly on the other side from the United States on the same side as China.
12:49On the South China Sea, Indonesia is definitely on the US side and not on China's side.
12:55So he says, we look at our best interests and we take our sights accordingly.
13:01There is no blanket rejection.
13:03That is irrational.
13:05And Indonesia is particularly important for China and the United States,
13:11largely because Indonesia has always been the leader of Asia.
13:19But it's not a role that it has been able to play very much.
13:25Because given the size of Indonesia, it is the natural abang.
13:31But it has never played that role very well.
13:35Largely because most Indonesian presidents, except for SBY,
13:40were not so interested in leading ASEAN because the leaders could not dominate the discussion.
13:51And why couldn't they dominate the discussion?
13:53Because they were not as fluent in English or as knowledgeable about foreign affairs.
13:59SBY was very fluent in English, but he didn't have much of an international background.
14:07Whereas Brabovo, he spent a lot of his youth studying abroad.
14:16Like for example, he attended school here in Kuala Lumpur.
14:20And that was because his father was in virtual exile during the time.
14:27The father was a very prominent economist who was on a site that was pro-West and less pro-Sokano.
14:39And so he had to go in the exile.
14:42And as a result, Brabovo got a very international upbringing.
14:48He has lived in different countries and he knows at least two European languages.
14:55So you could see that.
14:56And he has always had a strategic, geostrategic view of the world.
15:04Because he was a high member of the US military when his father-in-law was president.
15:13That is Sohato.
15:15Yes.
15:15So you see this as kind of the direction of how US-China-Indonesia relations would be going forward.
15:26Can I ask you then what impression it leaves for the rest of the ASEAN countries?
15:34So when we look at how the Indonesian experience of this trade deal
15:39and the messages, the subliminal messages that have been sent by Trump and by Brabovo,
15:46what should countries like Malaysia take away from this entire negotiation process?
15:53Very good.
15:54No higher than 19 now.
15:56That's what the first thing we have to say.
15:59That is the threshold.
16:00No, no, no.
16:01So our meeting minister, Tunku Saifu, now has a metric of 19%.
16:10Absolutely.
16:11Absolutely.
16:12So the important thing is before he talked with Trump, he was in Brussels.
16:20And he also reached a deal with the Europeans.
16:23Right.
16:24And whereby he increased the market access of Indonesia in Europe.
16:31So they settled, you know that the Europeans have put on tariffs, if not outright ban on pump oil from newly deforested areas.
16:45Oh.
16:45So if the pump oil comes from newly deforested area, the Europeans would not buy it.
16:52I think they have come to an agreement on that feature.
16:58And that is good for Malaysia because that means palm oil is now, we have got a metric of what the bargaining could mean now.
17:09We have got a good standard.
17:12But what has happened is he has preserved the principle of free trade.
17:22He has already done it with the Europeans.
17:25And now, as best as one could get free trade with the United States.
17:31And so he has opened the way for ASEAN to be able to take the lead in protecting the global free trade system.
17:42And since Indonesia is a member of BRICS, they are going to have free trade with the BRICS countries as well.
17:51So it's truly multilateral.
17:53I think here is someone who understands the external world and will be a guiding force on the foreign policy, foreign economic policy of the ASEAN region.
18:10There need not be a formal agreement on what the collective external economic policy is, which just follow Indonesia.
18:23One last question from me that I've been thinking of based on some of the feedback or the chatter that's come out from this trade deal.
18:32There are those who say, why did Indonesia jump to finalize a deal so quickly?
18:40Because the August 1st deadline is still some ways away, a couple of weeks away.
18:47And being so few countries having finalized a deal, did Indonesia jump the gun in signing this agreement or in finalizing this deal when it should have maybe waited a little longer, a little closer to the deadline?
19:05Why do you think about that?
19:06I mean, bearing in mind also the 90 deals in 90 days target, in terms of timing, did Indonesia do this right in locking in a deal before the deadline?
19:22Now, what is the characteristic of Donald Trump?
19:27He changes his mind every now and then.
19:31That means that he accepts the right of other people to change their minds.
19:36And if someone else gets a better deal, Indonesia could go back.
19:42And given the importance of Indonesia, I think he'll be able to renegotiate a deal.
19:51In other words, like, hey, you have not been fair to me.
19:54You know, now I'll move closer to China since you are not showing friendship.
20:00But the fact is, Trump needs to report successful deals.
20:07And the pressure is more on him than on Prabowo to declare a deal.
20:17And because of this pressure on Trump to perform, he has to, of course, you could see them.
20:26But a masterful negotiator Prabowo was.
20:29But he praised Donald Trump.
20:32He was a tough negotiator.
20:35Absolutely.
20:36And, you know, the only thing he hasn't said is, he's also a very good looking man, isn't he?
20:41No, no, but he certainly was as opposed to the Trump letter that we talked about the last time.
20:53He's a truly accomplished diplomat.
20:56A masterful negotiator. Fantastic.
21:00So, what do you think this deal will do for Indonesia in terms of its economic development?
21:08Is there a boon for the economy expected?
21:12Well, it lays this deal together with Indonesia's membership in BRICS and its agreement with Europe.
21:21So, it lays the basis for Indonesia to mobilize international support for its economic development.
21:32Because what's holding the country back?
21:35What's holding the country back is a serious shortage of physical infrastructure.
21:42Here, you have got a country of 13,000 islands, and you don't have many good ports, whereby tankers could come and take away the goods.
21:54They go by Sampan to Singapore to be reshipped.
21:57They could have better ports in Indonesia.
22:01And the other thing is, you look at all these naysayers talking about the Bandung, Jakarta, high-speed railroad,
22:13and how it was causing so much trouble and the delays, the cost overrun.
22:19But now, we don't hear any criticism about that particular high-speed railroad.
22:26It's a great success.
22:28There are now high-speed railroads between trains between Bandung and Jakarta.
22:35That comes almost every hour.
22:39And it cuts the traveling time down to one quarter of what it used to be.
22:44I hear it's fantastic.
22:45And so, what we now need is a high-speed railroad from Jakarta to Surabaya.
22:53And you could see that given the density of Java, high-speed railroads is the way to begin.
23:01So, building infrastructure is very important.
23:06The other part that Indonesia has to mobilize fully, it's the human potential.
23:13Just, what's the advantage of a big country?
23:17The advantage of a big country is, if we think of every country,
23:25that the potential of smart people, the proportion, in my opinion, is roughly the same in every country.
23:34Maybe 3.5% of any population have the potential to be exceedingly successful.
23:42Bill Gates, Elon Musk, even a smaller proportion to be Einstein.
23:48So, if you look at Indonesia's population of 300 million, that means 3.5% means that Indonesia has almost 3.5%.
24:08300 million, that means it has got almost 10 million of very high smart people, very highly educated people.
24:17But they have to be educated.
24:19That's what it is.
24:21That's why, Nick Kuan Yew say, it's very hard for Singapore to really be innovative.
24:25Like, Singapore now has a population of 6 million, 3.5% of it is 210,000.
24:34Indonesia has 50 times more truly smart people.
24:38But of course, it has also 50 times more stupid people.
24:43But the truth is, the growth is generated by the truly smart, and then they create the jobs for the ones that are less gifted.
24:52So, Indonesia has to have two real human capital investments.
25:01Prabowo's signal promise in his election was that he would have a free meal for every Indonesian student.
25:10That is because stunting in Indonesia is 21% of the youth, 21%, compared to 10% in Thailand, and 0.7% in Korea.
25:25And what is wrong with stunting?
25:27We now know that your IQ is about 15 points lower.
25:34That means that if you are stunted, even though you are given a better education later, it's harder to teach you.
25:44It's harder for you to learn.
25:46So, stunting is the first thing.
25:48You've got to have the guy to be capable of learning, capable of becoming an Einstein, 3.5%.
25:54So, that's why he put the emphasis on this food lunch program.
26:04An interesting fact is that the stunting rate in Malaysia is also 21%.
26:09Oh, is it?
26:10This is quite shocking, given the fact that we are so much richer.
26:14Basically, nutrition education in Malaysia is truly lacking.
26:21It is...
26:22That is the puzzling aspect of given how educated we are, and that we can afford it.
26:32Our stunting rate is at 20%.
26:35Same as Indonesia.
26:38They are our brothers and sisters, but this is a little too close.
26:41But anyway, coming back to Indonesia, Indonesia, if you look at its universities, there's a great shortage of quality universities.
26:53So, Indonesia has to invest in that.
26:57And how would you upgrade your universities?
27:02You upgrade it with help from the best universities in the world.
27:08And what are the best science and technical universities in the world?
27:13United States, Europe, and China.
27:16Korea and Japan.
27:19Now, what Indonesia really needs is, it has to invest in physical infrastructure.
27:25It has to invest in its universities.
27:28Invest in this nutrition program.
27:31Where is it going to get the money?
27:33Especially for the physical infrastructure.
27:35China has the BRI program.
27:39The BRI program has spent $1 trillion US dollars so far.
27:45And to counter BRI, the Belt Road Initiative for China,
27:50the G7 has come up with the Partnership for Global Infrastructure Investment, PGII.
27:58$600 billion.
28:00Wow.
28:00So, here, there are two pots of money.
28:03And they will surely, the first in line they would give it to is the linchpin of ASEAN.
28:10And that's Indonesia.
28:12Okay.
28:12And he has shown, he's a friend to them both.
28:16And he could not only just ask for money.
28:18He could ask for the following, like India did.
28:21Which is that, get each of the best technical universities in China to partner with an Indonesian university.
28:32And bring it up to the level of the other country.
28:39That's why India is so good in IT.
28:41Maybe because it's IIT.
28:44Each was partner with a leading European or Russian or East German university.
28:50That's right.
28:51So, Indonesia could repeat that.
28:54Wow.
28:54It was, you know, if you look at Institute of Technology, Pandong, University of Petanian, Bogor.
29:02Now, this, and Ui, Gajamada, Alanga, these are excellent universities.
29:09But they need extra help, especially in the science and engineering.
29:15And this is where you would have a China that is eager to be able to tap into the human resources of Indonesia as well.
29:28And if you train them, if Chinese universities, they would buy Chinese equipment in the future.
29:36Get them young.
29:37But that sounds really exciting for the potential of Indonesia.
29:42Maybe then they might naturally become the Abang of ASEAN or, you know, kind of grow into that role as Abang of ASEAN.
29:51I think the very good news is our Prime Minister is a very good friend of Prabowo.
29:58We have very close ties to Indonesia.
30:01If Indonesia moves, we will be the first one to have great advantage in accessing its market.
30:09The taste and the fashion, we will be able to be catered to that market.
30:16Definitely serupun market.
30:18And we would be able to rise together.
30:20This is a case of you want all your neighbours to be rich.
30:25Then they can pay higher prices for the goods they buy from you.
30:29Absolutely.
30:30Prof Wu, thank you so much for that insightful analysis on Indonesia and the trade deal.
30:35I guess that's it for this episode of Wu Says,
30:38where we get real about the US, China, everywhere and everything in between.
30:43I'm Melissa Idris signing off.
30:44I will see you next week.
30:46Bye-bye, folks.
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31:13Bye-bye, folks.
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