How Countries Like Indonesia Can Leverage Global Tensions to Strengthen Domestic Industry and Diversify Export Markets
Introduction
Global economic and geopolitical tensions—ranging from trade wars and supply chain disruptions to regional conflicts and strategic decoupling—are reshaping the international trade landscape. While these tensions often pose risks to global growth, they also create strategic opportunities for emerging economies. For countries like Indonesia, the world’s fourth most populous nation and Southeast Asia’s largest economy, these shifts can be leveraged to strengthen domestic industries and diversify export markets.
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Rather than remaining passive observers of global uncertainty, Indonesia and similar nations can adopt proactive industrial, trade, and diplomatic strategies to enhance economic resilience, reduce dependency on traditional partners, and move up the global value chain.
Understanding the Opportunity Behind Global Tensions
Shifting Supply Chains and the “China Plus One” Strategy
Trade tensions between major powers—particularly the United States and China—have accelerated the global trend of supply chain diversification. Multinational corporations are increasingly adopting a “China Plus One” strategy, seeking alternative manufacturing bases to reduce geopolitical and operational risks.
Indonesia is well-positioned to benefit from this shift due to:
Its large domestic market
Competitive labor force
Abundant natural resources
Strategic location along major global trade routes
By positioning itself as a reliable manufacturing and sourcing alternative, Indonesia can attract foreign direct investment (FDI) while boosting local industrial capacity.
Strengthening Domestic Industry: Key Strategies
1. Accelerating Industrial Downstreaming (Value Addition)
One of Indonesia’s most effective strategies has been industrial downstreaming, particularly in natural resource sectors such as:
Nickel and battery materials
Palm oil derivatives
Copper and aluminum processing
Instead of exporting raw commodities, Indonesia can:
Encourage domestic processing and refining
Support local manufacturing ecosystems
Increase export value per unit
This approach not only improves trade balances but also creates skilled jobs and enhances technological capabilities.
2. Supporting SMEs and Local Supply Chains
Small and medium-sized enterprises (SMEs) form the backbone of Indonesia’s economy. To strengthen domestic industry during periods of global uncertainty, governments can:
Improve access to financing and digital tools
Integrate SMEs into global and regional supply chains
Provide technical assistance and export readiness programs
Resilient domestic supply chains reduce vulnerability to external shocks while enhancing overall industrial competitiveness.
3. Investing in Human Capital and Industrial Skills
Long-term industrial strength depends on workforce quality. Indonesia can leverage global tensions as a catalyst to:
Expand vocational and technical education
Align training programs with priority industries (manufacturing, EVs, electronics, renewable energy)
Foster public–private partnerships for skills development
A skilled workforce increases productivity and builds investor confidence.
Diversifying Export Markets: Reducing Overdependence
1. Expanding South–South Trade
Global tensions among major economies have renewed interest in South–South cooperation. Indonesia can deepen trade relations with:
Africa
South Asia
The Middle East
Latin America
These regions offer fast-growing consumer markets and often have complementary economic structures, reducing direct competition.
2. Leveraging Regional and Multilateral Trade Agreements
Indonesia is already part of several strategic trade frameworks, including:
ASEAN Economic Community (AEC)
Regional Comprehensive Economic Partnership (RCEP)
By actively utilizing these agreements, Indonesia can:
Gain preferential access to new markets
Attract export-oriented investment
Encourage regional production networks
Trade agreements help mitigate risks arising from bilateral trade disputes elsewhere.
3. Promoting Export Diversification Beyond Commodities
To strengthen export resilience, Indonesia must continue moving beyond traditional commodity exports toward:
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Manufactured goods
Processed food and beverages
Automotive and electronics components
Digital services and creative industries
Diversified exports are less vulnerable to price volatility and geopolitical shocks.
The Role of Government Policy and Economic Diplomacy
Strategic Industrial Policy
In times of global uncertainty, clear and consistent industrial policy is essential. Governments can:
Identify priority sectors
Offer targeted incentives tied to performance and technology transfer
Ensure regulatory certainty for investors
Policy credibility is a critical element of trust under the EEAT framework.
Active Economic Diplomacy
Indonesia can use its non-aligned foreign policy tradition to:
Act as a neutral and reliable trade partner
Mediate economic cooperation across competing blocs
Position itself as a hub for regional production and logistics
Balanced diplomacy enhances market access while minimizing geopolitical risk exposure.
Building Long-Term Economic Resilience
Global tensions are unlikely to disappear in the near future. Countries that succeed will be those that adapt structurally, not just tactically. For Indonesia, this means:
Strengthening domestic industrial foundations
Diversifying export destinations and products
Investing in people, technology, and institutions
By doing so, Indonesia can transform global uncertainty into a platform for sustainable and inclusive growth.
Conclusion
While global geopolitical and economic tensions pose undeniable challenges, they also present rare strategic openings. For countries like Indonesia, these disruptions can be harnessed to reinforce domestic industries, reduce external dependencies, and unlock new export markets.
Through smart industrial policies, export diversification, human capital development, and proactive economic diplomacy, Indonesia can not only weather global uncertainty but emerge as a more resilient, competitive, and influential player in the global economy.