Indonesia’s plan to fight cheap online imports from China

Devita Ariyanti has been selling hijabs for four years from a small store in the Indonesian city of Yogyakarta. Her biggest challenge used to be delayed shipments. Now, she is facing a more existential threat to her business: cheap imported hijabs on e-commerce platforms such as Shopee, Lazada, and TikTok Shop.

Devita sources her hijabs from wholesale markets in the city, which is known for its traditional crafts. The hijabs range in price from 150,000 rupiah ($9) to 400,000 rupiah ($25), way more expensive than the cheapest hijabs on sale on the e-commerce sites.

“Luckily I have loyal customers,” the 43-year-old entrepreneur told Rest of World . “But I have to admit it’s hard to compete with cheap imports sold online. So if the government wants to help us [with a higher import tax], that would be great.”

It’s businesses like that of Devita which the Indonesian government says it wants to protect, with a plan to impose import duties of up to 200% on a broad range of goods including textiles, clothing, footwear, cosmetics, and electronics. The measures are largely aimed at Chinese imports, which have surged in recent years as e-commerce platforms gained in popularity.

“If we are flooded with imported goods, our micro, small and medium enterprises could collapse,”  Zulkifli Hasan, Indonesia’s trade minister, said in a briefing in July. These businesses make up about 60% of the country’s gross domestic product, and employ around 120 million people, according to government data.

Indonesia is Southeast Asia’s largest e-commerce market , accounting for nearly half the gross merchandise value of the eight top platforms, according to advisory firm Momentum Works. The value of e-commerce sales in Indonesia hit $77 billion last year, authorities say.

Chinese imports had enjoyed low, or zero, duties in Indonesia under regional trade agreements. But as sales of cheap clothes, shoes, and electronics surged online, the government stepped in to protect local businesses. President Joko Widodo has repeatedly raised concerns about low-priced Chinese-made goods, and urged consumers to shun imported products. The country has imposed the strictest curbs on cross-border e-commerce sales in the region. It set a de minimis limit — the threshold below which goods are not subject to import duties — at $100, then lowered that to $75, and then to $3. Authorities also banned shopping on social media platforms last year, forcing TikTok Shop to close . But the platform was back online after about two months, saying it had met the requirements.

Across Southeast Asia, other governments are also cracking down with higher import duties and outright bans on some goods. Malaysia has a 10% sales tax on imported goods priced below 500 ringgit ($106), while the Philippines has imposed a 1% withholding tax on online merchants. In Thailand, the entry of Chinese e-commerce firm Temu has sparked calls for higher tariffs on some imported goods. More taxes and curbs on e-commerce firms may be imminent across the region, Simon Torring, co-founder of research firm Cube Asia, told Rest of World .

“E-commerce has become so big that it’s become apparent that it has an impact on local businesses,” he said. “Indonesia is the first country to take real action, and local retailers in other countries in the region are also pressuring their governments to take action. The entry of Temu in Malaysia and the Philippines is stoking a lot of concern because it has gotten so big in Europe and the U.S.”

Indonesian authorities have said Temu’s direct-to-consumer model would violate local laws that require sales through an intermediary. Other firms, including Shopee, Lazada, and TikTok Shop have all incorporated in Indonesia, and source goods from China that they sell on their platforms.

The government’s plan to impose a higher tax rate will help local industries, Bhima Yudhistira, director of the Center of Economic and Law Studies, a think tank, told Rest of World . But he warned that higher import duties can also lead to tensions between countries. “If the government is not careful, it will cause problems, including retaliation or worse,” Bhima said.

While Southeast Asian nations are trying to rein in Chinese e-commerce firms, they are also pulling out all the stops to welcome Chinese electric vehicle makers such as BYD and GWM, with subsidies and other incentives to set up manufacturing plants. Indonesia has a trade deficit with China, but authorities were forced to roll back some import restrictions earlier this year after complaints that they led to a slowdown in manufacturing.

In Jakarta’s Tanah Abang, Southeast Asia’s largest textile market, many businesses have shuttered, unable to compete with cheap imports. Others have simply shifted to selling imported items to survive. More than three-fourths of shoppers are now resellers who sell items purchased on livestreams on TikTok Shop and Shopee Live.

At a small shop selling readymade clothes, a local jasa titip , or personal shopper, posted stories on her Instagram account while stuffing a large suitcase with items that she planned to resell to customers across Indonesia. At another shop, two jasa titip from Malaysia were going live on TikTok, with a phone mounted on a tripod.

“These cute pants are only 89 ringgit [$20],” exclaimed one, while her friend held up a pair of beige cotton trousers.

Higher import tariffs will also not stem the flood of illegal imports into the hundreds of unmanned ports across the archipelago. While the government must do more to stop these shipments, it must also ensure that local businesses that rely on imports are not penalized, Wisnu Wahyudin Pettalolo, a vice chairman at the Indonesia Chamber of Commerce, told Rest of World .

“We are not anti-imports,” said Wisnu, also a member of the trade ministry’s task force on illegal imports. “But the government must have clear classifications of goods that should or should not be imported. Because like it or not, we are still relying on raw materials from overseas, and some products cannot be produced locally.”

Away from the bustle of Jakarta, Rakhmawati started making batik apparel during the pandemic. The 43-year-old in North Sumatra sources fabric from Yogyakarta and Solo, and sells the finished items at between 150,000 rupiah ($9) and 1 million rupiah ($63). She posts pictures on Instagram occasionally, but relies almost entirely on her regular customers and the local markets for sales, she told Rest of World .

“Of course I’m concerned about the e-commerce sites that sell cheaper goods,” she said. “My products are more expensive, but they are handmade, with unique designs. My customers still value this.” ▰

Adi Renaldi is a multimedia journalist covering climate, technology, and socio-economic inclusivity based in Jakarta, Indonesia.