During an afternoon tea at the White House on November 13, Indonesian President Joko Widodo and U.S. President Joe Biden are set to discuss advancing cooperation in mineral resources between the two countries. Both leaders are also scheduled to attend the APEC meeting in San Francisco later this week.
Indonesian officials have been actively extending olive branches to the United States this year. In April, Luhut Pandjaitan, the minister overseeing natural resources and investment regulations, mentioned Indonesia's desire to reach a limited free trade agreement with the U.S. on nickel and other key electric vehicle battery raw materials. In September, the Indonesian government expressed its wish to have its related products protected under the U.S. Inflation Reduction Act and requested negotiations with the U.S. on a key mineral trade agreement.
The Inflation Reduction Act, signed into law by the Biden administration in August last year, aims to increase the use of clean energy to address the climate crisis. The Biden administration has committed to electric vehicles, hoping that by 2030, EV sales will account for 50% of all new car sales.
In March this year, the U.S. Treasury Department released a notice of proposed rulemaking for new provisions in the act related to clean energy vehicles. The provision requires a significant portion of the key minerals contained in electric vehicle batteries to be extracted or processed in the U.S. or in countries with which the U.S. has a free trade agreement, to qualify for a $3,750 tax credit per electric vehicle.
By 2023, the U.S. government requires that 40% of the minerals related to the U.S. in EV batteries should come from such sources, increasing to 80% by 2027.
Indonesia, a major nickel-producing country, does not have a free trade agreement with the U.S.
According to data from the U.S. Geological Survey, Indonesia has proven nickel reserves totaling 21 million tons, nearly a quarter of the world's total reserves. Nickel mining and smelting have become significant parts of Indonesia's economy. Since the Indonesian government banned the export of unprocessed ore in 2020 to protect its economy, billions of dollars have been invested in the country.
Nickel is a crucial raw material for electric vehicle batteries, and due to limited substitutes and high demand, global EV manufacturers heavily rely on Indonesia. The global market size of the nickel industry is estimated to be $33.5 billion in 2022. Soni Kumari of ANZ Bank noted that Indonesia's share of global nickel production has grown from less than 20% to nearly 50% over the past four years, forcing even buyers from developed markets to source from Indonesia.
The U.S. does not have nickel smelters, and its only nickel mine will close within a few years. The Biden administration needs to pave the way for the development of the domestic electric vehicle industry.
However, sources reveal that the Biden administration is dissatisfied with Indonesia's domestic environmental issues, social, and governance standards, and is considering how to proceed. The current focus of discussions is on how to reduce the environmental impact of nickel mining and production.
The Indonesian government has also made efforts. President Widodo has expressed the need to strengthen control over nickel mines to ensure miners' rights are protected. In the future, only new smelters powered by renewable energy will be granted licenses, and plants currently using coal power will transition to renewable energy sources soon. Additionally, the Indonesian government has banned factories from dumping tailings into the sea and requires reforestation of depleted mines.
The Biden administration's restrictions on electric vehicles have been criticized as trade protectionism. Japan's Asahi Shimbun believes that the U.S. is exacerbating the spread of trade protectionism globally under the guise of protecting national security.
The World Trade Organization stipulates that countries are prohibited from discriminating against any imported products for the development of their own trade, except for national security concerns. However, the U.S. exempts only its own and agreement-signing countries from taxes under the guise of national security, effectively undermining international trade rules.
If other countries adopt similar measures, it could further intensify international trade disputes and impact the efficiency of international division of labor.
Indonesia, with its enormous development potential, is the largest country and economy in Southeast Asia. In 2022, Indonesia's GDP was more than three times that of Vietnam, with a growth rate of 5.31%, leading among the ASEAN countries.
Under the Belt and Road Initiative, China and Indonesia have established long-term cooperation. After seven years of construction and testing, the China-built Jakarta-Bandung High-Speed Railway in Indonesia began commercial operations in October this year, greatly facilitating local travel and benefiting local business development.
The Biden administration hopes to exclude products handled by China in its cooperation with Indonesia. In the upcoming meeting between Biden and Widodo, sources reveal that the Biden administration hopes to exclude any nickel produced in Indonesia but processed in China from the trade agreement.
