THE ASEAN–CHINA FREE TRADE AGREEMENT: POLITICAL ECONOMY IN INDONESIA

Abstract

The ASEAN–China Free Trade Agreement has been the most consequential trade agreement for ASEAN in the past decade. In this article, I use partial equilibrium modelling to estimate the direct impacts of the agreement on Indonesia and China, and from these estimates draw political economy implications for Indonesia. Although the agreement has contributed to a modest trade surplus for Indonesia overall, it has led to a larger bilateral deficit with China. In addition, the shifts to surplus for Indonesia have mostly been in resource-based sectors, while the shifts to deficit have occurred in many manufacturing sectors that the government would like to see grow. I argue that pushback against the agreement has contributed to a resurgence of non-tariff trade barriers in the country, although other political economy forces also have been at work. The agreement ultimately provides a cautionary tale: cutting regional import tariffs can lead to pressures for more complex and less transparent trade policies.