Trade tensions: A worker in action at a battery manufacturing plant in West Java. Indonesia exports most of its nickel to China but sees the United States, home to EV giant Tesla, as a promising alternative market for the key battery material. — AFP
JAKARTA: The re-election of Donald Trump as United States president may complicate talks with Indonesia about a free-trade agreement (FTA), but such a deal may not be the only way to open the US market for Indonesian nickel, experts believe.
Securing an FTA focused on critical minerals, something Jakarta has long sought from Washington, may only get harder as the incoming administration is set to double down on tariff barriers.
“The prospects of a limited FTA seem very small, considering the high probability of increasingly protectionist policies under Trump,” Siwage Dharma Negara, an economist at Singapore’s ISEAS Yusof Ishak Institute, told The Jakarta Post on Monday.
He added that Indonesian nickel products related to Chinese investment would “certainly be affected” should the US-China trade war intensify due to higher tariffs imposed by the United States on Chinese products.
Indonesia exports most of its nickel to China but sees the United States, home to electric vehicle (EV) giant Tesla, as a promising alternative market for the key battery material.
However, shipments to the country run up against the US Inflation Reduction Act (IRA), which grants preference, and generous subsidies, to EV producers and suppliers based in the United States or in countries with which the United States has FTAs, such as Canada, the biggest supplier of nickel to the United States.
Furthermore, Siwage noted that Tesla had “started developing EV battery technologies that would not depend too much on nickel”.
Tesla is expanding its battery facility in Sparks, Nevada, to bring the supply chain of cheaper lithium iron phosphate batteries to the United States and looking to buy idle equipment from its Chinese battery supplier Contemporary Amperex Technology Ltd (CATL), Bloomberg reported on Jan 31.
Under Joko “Jokowi” Widodo, President Prabowo Subianto’s predecessor, Indonesia proposed a critical minerals FTA with the United States.
But the prospects of such a deal being ratified by the US Congress are dim as both Republican and Democratic senators have raised concerns regarding heavy Chinese investment in the Indonesian nickel industry and an alleged lack of stringent labour and environmental standards at Indonesian mines.
Andry Satrio, an economist at the Institute for Development of Economics and Finance (Indef), said that given president-elect Trump’s deep scepticism about any trade agreement that does not produce a benefit for the United States, it was highly unlikely that a critical minerals FTA would come to pass.
“It will be challenging to get a limited FTA signed without any tangible (US-Indonesia) bilateral efforts. Indonesia’s close ties with China will make it even more difficult to pass the FTA,” he told the Post last Thursday.
“If the government wants to export Indonesian nickel products to the US market, it needs a proper strategy. Indonesia may as well consider focusing on exports to other markets.”
However, Alloysius Joko Purwanto, an energy economist at the Economic Research Institute for Asean and East Asia, said Indonesian nickel products still had a chance at accessing the US market under Trump.
He is often characterised as favouring a transactional approach in bilateral trade relations.
“I think with Trump’s presidency, we will get a chance, as long as we can prove ourselves,” Alloysius told the Post on Monday.
Some have argued that Trump may repeal the Biden-era IRA altogether.
Djoko Widajatno, executive director of the Indonesia Mining Association, told the Post on Monday that the United States still needed Indonesian nickel to secure minerals for domestic processing and manufacturing.
“In general, the nickel market remains promising because of its competitive production costs,” he said.
The United States has issued a new guidance for a US$7,500 EV consumer tax credit under the IRA, but with strings attached.
Getting half of the credit requires a threshold percentage of the battery’s critical minerals to be extracted or processed in a country that has an FTA with the United States.
The other half requires a threshold percentage of battery components to be manufactured or assembled in North America.
Indonesian businesses have expressed concern over the policy as EV batteries using minerals sourced from Indonesia will likely be ineligible for the tax credits given the lack of an FTA with the United States.
To remain eligible for the tax credit, the IRA also requires EVs in the US market not to have battery components manufactured or assembled; and not contain critical minerals extracted, processed or recycled by a “foreign entity of concern”, with the former taking effect next year and the latter a year after.
As a result, Chinese companies are in talks with potential investors to reduce their stakes in Indonesian nickel smelters amid efforts to make their products eligible for US EV tax credits.
In the latest development, nickel mining firm PT Vale Indonesia and China’s GEM signed a landmark US$1.42bil investment to build an HPAL project in Central Sulawesi slated to produce at least 66,000 tonnes of mixed hydroxide precipitate annually.
GEM will own up to 25% in the project, the Vale unit will take 30% and a third party will be introduced for the remainder.
GEM and the Vale unit will also consider building downstream anode and precursor plants. — The Jakarta Post/ANN
