Heaptalk, Jakarta — Indonesia needs to explore trade opportunities from technology decoupling policies and the friendshoring phenomenon, which is expected to occur. According to the Head of the Trade Policy Agency (BK Perdag) Ministry of Trade, Kasan, the phenomena of technology decoupling and friendshoring are expected to impact the global economy and trade significantly and are believed to be able to change trading and investment patterns.
“Decoupling and friendshoring have emerged in a global context rife with challenges. However, the changes in global trade patterns present a crucial opportunity for Indonesia to bolster its national economic resilience. It is imperative that we seize these opportunities. This includes accelerating economic diversification, reducing dependence on commodity exports, and developing sectors with high added value, such as technology, manufacturing, services, and other strategic industries,” Kasan explained at the opening of Gambir Trade Talk (GTT) #14 at Borobudur Hotel Jakarta (05/15).
Technology decoupling and friendshoring reflect changes in global trade dynamics that are influenced by political, security, and economic factors. The global trade disruption caused by the covid-19 pandemic, which was then followed by geopolitical tensions in several regions, has raised concerns about the resilience of global supply chains and the country’s economic security.
Decoupling refers to separating or reducing dependence on global supply chains. As a result, a country tends to build or strengthen sourcing, production, or distribution locally or regionally to reduce the risk of supply disruptions and respond to market changes.
Meanwhile, the decoupling strategy also aims to maintain a country’s security, such as the technology decoupling strategy implemented by the United States (US) against the People’s Republic of China (PRC). Trade conflicts and cybersecurity issues have pushed both countries to reduce their technological dependence on each other. The US has implemented bans and restrictions on exporting specific technologies, such as artificial intelligence chips, to the PRC, while the PRC has also taken steps to promote its own domestic technology in response to US policies.
On the other hand, friendshoring reflects the tendency of some countries to reduce dependence on countries that are considered potential threats or competitors. “The imposition of US tariffs and trade barriers against the PRC in 2018 is seen as an action that reflects friendshoring,” he explained. Apart from these policies, ratifying the CHIPS and Science Act and the Inflation Reduction Act (IRA) is also an example of friendshoring implemented by the US. These regulations incentivize manufacturers who purchase and obtain production inputs from countries that are US allies for the semiconductor, critical mineral, and battery sectors.
“Indonesia must adopt comprehensive, fundamental, agile, and anticipatory trade strategies and policies to optimize these opportunities. This aims to make Indonesia compete with other countries to mitigate negative impacts and optimize positive impacts in supporting national economic transformation,” Kasan emphasized.
Economic Research Institute for ASEAN and East Asia (ERIA) researcher David Christian explained the context and background of decoupling and friendshoring. He said that these two matters were motivated by a number of conflicts and trade wars, which resulted in several countries’ push to become independent and look for closer production locations.
A researcher at the Faculty of Economics and Business, University of Indonesia, Kiki Verico, explained the impact of technology decoupling and friendshoring on global value chains and international trade. He said the world was changing rapidly, and the US was increasingly looking inwards. The US has become labor-intensive in the clothing and shoe production sector and no longer produces much in developing countries.
Executive Director of CORE Indonesia Moh. Faisal explained how to navigate Indonesia’s foreign trade strategy in the face of technology decoupling and friendshoring. He believes that Indonesia needs to focus on attracting investors who control the global value chain and are willing to create deep domestic linkages/capabilities. Indonesia also needs to pay attention to these investors’ supporting capacity.
GTT is a form of joint collaboration between policymakers and academics in formulating policies that the Indonesian Government needs to prepare for facing various challenges, issues, and new phenomena in the current dynamics of global trade. “GTT #14 is expected to provide a deeper view, insight, and knowledge of the decoupling and friendshoring phenomena that several countries have implemented,” he concluded.
