Indonesian apparel needs help abroad as much as tariffs at home

The Indonesian government is set to apply tariffs to imports of apparel from Bangladesh, China, Singapore and Vietnam within the next three months, the Sourcing Journal reported, as the government attempts to protect its domestic industry. The timing is likely a result of challenges to demand resulting from the coronavirus pandemic but clashes with Indonesia's participation in the recently agreed — but not yet ratified — Regional Comprehensive Economic Partnership, or RCEP. As discussed in Panjiva's research, the RCEP deal is supposed to be a tariff-free trade area.

Panjiva's data shows that Indonesia's imports of apparel fell 41.4% year over year in the three months to Nov. 30, 2020. Shipments from Bangladesh have been the outlier with a 100.7% year-over-year expansion, while shipments from China fell 36.7%. In aggregate, the four countries represented 73.4% of Indonesia's apparel imports in the 12 months to Nov. 30, 2020, led by shipments from China. The imposition of tariffs will increase costs for retailers, including Fast Retailing Co. Ltd.

That comes at the same time as Indonesia's apparel exports globally had been inching higher, with growth of 5.0% year over year in the three months to Nov. 30, 2020. The expansion was led by a 7.4% rise in shipments to the U.S., which represented 50.9% of exports in the past 12 months. There is little sign that the recovery has continued, though. U.S. seaborne imports of apparel from Indonesia fell 55.4% year over year in January and February combined.

The downturn has been widespread, with imports linked to H & M Hennes & Mauritz AB (publ) and PVH Corp. dropping 44.4% and 48.9%, respectively, over the same period after also declining in the fourth quarter of 2020. Meanwhile, adidas AG has seen a turnaround, with a contraction of 48.3% after growth of 14.5% in the fourth quarter of 2020.

Christopher Rogers is a senior researcher at Panjiva, which is a business line of S&P Global Market Intelligence, a division of S&P Global Inc. This content does not constitute investment advice, and the views and opinions expressed in this piece are those of the author and do not necessarily represent the views of S&P Global Market Intelligence. Links are current at the time of publication. S&P Global Market Intelligence is not responsible if those links are unavailable later.