Indonesia's Nickel Tariff Affects Japan

A negative impact on the Japanese economy is feared after Indonesia imposed a 20 percent export tariff starting in June on almost all unprocessed ore, mainly nickel, exported to Japan and China, among other countries.

In addition, Indonesia has announced a policy to totally ban exports of the resources in 2014.

The move is an example of the growing phenomenon of resource nationalism, in which countries that export natural resources try to keep the resources within their own borders, driving up prices in the process.

Indonesia's new export tariff applies to 65 items, including unrefined or unprocessed nickel, copper, tin and gold.

Among them, nickel will impact Japan most seriously because Japan relies on imports from Indonesia for more than 50 per cent of its supply. Nickel is used to produce stainless steel.

Stainless steel is used for a wide range of products, such as kitchen sinks, train cars and chemical plant equipment.

If Indonesia bans the export, it is highly likely the move will trigger a surge in commodities prices.

The export tariff does not target Japan alone. In recent years, overexploitation by foreign entities has been rampant in Indonesia. The decision is partly due to the country's fear of depletion of its natural resources.

But Indonesia does not impose the tariff on products that are processed at refining plants inside the country and then exported.

Thus economists believe the action is also meant to help Indonesia's domestic industry grow.

The immediate focus of attention is whether the tariff payments will be shouldered by local mining companies or refining plants in other countries including Japan.