The free trade deal with Indonesia is crucial for Australia

| September 2, 2018

Scott Morrison is hoping to secure a landmark trade deal with Indonesia as he takes his first overseas trip as Prime Minister.

“Australia depends on rocks and crops,” says the UNSW Business School’s Tim Harcourt. “And many of Australian grain growers are doing it tough right now. That’s why they, and cattlemen, have high hopes of big reductions in tariffs with Indonesia, ahead of these talks.”

“Morrison has a hard act to follow. Malcolm Turnbull had very good relations with Indonesian President Joko Widodo, and the loss of Julie Bishop who was much respected in the region is another body blow. But Morrison will know that dairy, citrus and sugar producers want a deal. But a deal may be tough. Indonesian wants to be self-sufficient with its food,” says Harcourt, the J.W. Nevile Fellow in Economics at the UNSW Business School.

The PM has flown to Indonesia to meet with his counterpart Joko Widodo eight years after the two nations first began talks on a free trade agreement.

“Despite the dominance of security issues and geo-politics, in the media on the business side of things, Indonesia and Australia are long-standing economic partners. In fact, it was symbolic that in 2015 the new Australian Prime Minister Malcolm Turnbull visited Indonesia first, rather than the tradition of Australian Prime Ministers past to go to London or Washington as their first port of call,” he says.

“Wheat exports make up about half of Australia’s agricultural trade with Indonesia,” he says, and adds Indonesia is a vital trade partner with Australia, worth $16 billion in two way trade, and also a vital education partner.

“In fact, in the greater scheme of things, Indonesia is a much underrated economic partner. As well as big names like ANZ, Leightons, Commbank, Orica and Bluescope, over 2400 Australian businesses export goods alone to Indonesia and many corporates have receive rates of return four times that of China and India. But there are only 250 Australian companies with a presence in Indonesia, which compares to over 3,000 in other markets like China.”

Harcourt argues that free trade is crucial for Australia, and increased tensions around a trade war would not be good for the world economy. “World leaders now fear a trade war, just when there were good signs of better days ahead in the global economy.”