Freer trade with Canada will not alone lift Indonesia’s GDP up to First World levels, writes Terence Corcoran, but it is unlikely to head in the right direction without opportunities created by such deals. (Credit: DAVE CHAN/AFP via Getty Images/Postmedia files)
When Canada last week formally signed the Canada-Indonesia Comprehensive Economic Partnership Agreement, Prime Minister Mark Carney described the agreement as a “game changer” that will unlock major new economic opportunities for both countries. Carney also took leading credit for the deal, portraying it as part of his government’s trade strategy in the face of a “shifting global landscape.”
Most Canadian observers would likely assume that Carney is referring to the great Trump tariff bulldozer that is plowing through and overturning the international trade landscape. That impression would be accurate, but it is not the whole story. The structure of international trade is indeed undergoing major realignments, with Canada in particular seeking to expand its trade flows to areas of the world other than the United States.
But Donald Trump isn’t the only source of global trade realignment. Even without Trump, the world economy appears to be on track for expanded trade patterns as global economic development spreads to create new growth opportunities and rising standards of living in regions that are now ripe for major change.
Enter Indonesia. While Carney may prefer to give the impression that Canada is driving trade transformations, the real source of action in this case appears to be Indonesia. The Southeast Asia country, with a population of 280 million and the largest GDP in the region, last June was the first to forge a deal with the Trump administration. The deal has yet to be finalized and has been broadly criticized, but it nevertheless illustrates Indonesia’s get-out-in-front strategy.
In keeping with the strategy, last week Indonesia also signed the Indonesia-EU Comprehensive Economic Partnership Agreement, a trade pact that is essentially unrelated to Trump’s tariff war. Negotiations began nine years ago, triggered by narrow trade disputes. The same is true for Canada’s Indonesia trade negotiations, which began with exploratory talks in 2017 as part of a plan for a free trade deal with 10 southeast Asian nations.
To be fair to Carney and the Liberal strategists, the 2017 talks with the Asian nations were undertaken by the Trudeau Liberals after Trump began sabre rattling. While many dogmatic free traders have been dismissive of the Carney Liberal strategy of redirecting Canada’s trade flows away from the adjacent U.S. market to nations thousands of ocean miles away, it may well be advantageous to become part of a major transformation of a part of the world that is in need of trade that will help lift growth and prosperity.
That is certainly the objective of Prabowo Subianto, Indonesia’s new president, who is attempting to lead the country deeper into the global trading system. In Indonesia, the new deal is seen as a landmark breakthrough. “Canada to remove tariffs on over 90 per cent of Indonesian products,” headlined a Jakarta news story. Indonesian Trade Minister Budi Santoso said the deal covers his country’s key export products including textiles, footwear and processed foods. In return, Indonesia will remove tariffs on 85.54 per cent of Canada’s priority exports, such as frozen beef, wheat, potatoes, seafood and processed foods.
Canadian farm industries are gearing up for export expansion. The Indonesian deal could spur Canadian lumber exports and stimulate industrial production in Indonesia that could help lift the country out of its current economic status as a lower- to medium-income nation.
All this is not to suggest that Indonesia under President Prabowo is a thriving, well-governed nation. Some violent political demonstrations fuelled by economic troubles, including fiscal mismanagement and a two-decade decline in the country’s manufacturing sector, have created much uncertainty. An analysis of the government’s latest budget concluded that slowing growth, weak tax revenues and rising spending are among a list of growing problems.
Expanding trade and investment opportunities is one way Indonesia can lift itself up. A 2023 commentary from the World Bank suggested the country could fast-track to high income status through international trade. Compared with other nations in the region that saw exports grow by 13 times over the past 40 years, Indonesia’s exports expanded by only 3.5 times, partly due to a decline in manufacturing.
Freer trade with Europe and Canada will not alone lift Indonesia’s current US$5,000 GDP per capita up to First World levels, but it is unlikely to head in the right direction without expanded opportunities created by such trade deals.
Bear in mind that this is not a free trade agreement. Whether narrow bilateral trade agreements such as the Canada-Indonesia deal can actually stimulate major trade expansion is far from certain. The 1,148-page document is a mind-boggling introductory bundle of international trade legalese followed by 1,100 pages of listed products, tariff rates, export procedures, restrictions and rules. Everything from investments, technology and seafood are documented. Eels are tariff-free but some poultry can face 249 per cent tariffs.
If all countries end up with similar bilateral deals, global trade is unlikely to increase to the degree needed to raise Indonesia to Canada’s $55,000 per capita GDP level. In that sense, the Canada-Indonesia deal may not quite live up to its billing as a game changer, but it is better than nothing — we hope.
