Singapore Faces New Global Economic Reality: Tariffs, Trade Wars, and Uncertainty

The recent imposition of tariffs by the United States has raised serious concerns for Singapore, highlighting a shift away from rules-based globalization and free trade. This new era is characterized by protectionism and increasing uncertainty, posing challenges for Singapore's economy and its relationship with the US.

Disappointment with US Tariff Decision

Singapore has expressed disappointment with the US decision to impose a 10% tariff, especially given the longstanding friendship and trade relationship between the two countries. Singapore has a Free Trade Agreement (FTA) with America, which it is adhering to by imposing zero tariffs on U.S. imports and furthermore, Singapore runs a trade deficit with the United States, buying more from them than they do from us.

• Singapore questions the logic of the tariffs, as they were intended to target countries with trade surpluses.
• The tariffs are seen as actions that are inconsistent with the nature of a friendship.

Rejection of WTO Rules and the MFN Principle

The reciprocal tariffs are viewed as a fundamental rejection of the World Trade Organization (WTO) rules and a repudiation of the Most Favored Nation (MFN) principle. This move opens the door to selective, country-by-country trade relations based on unilateral preferences. If other countries follow suit, the entire rules-based trading system could unravel, which would disproportionately affect smaller nations like Singapore due to their limited bargaining power.

Growing Threat of a Global Trade War

The likelihood of a full-blown global trade war is increasing. Trade barriers, once erected, are difficult to remove, and the initial tariff increases by the US could be the start of a series of escalating measures globally. This scenario has significant implications for the global economy.

Impact on the Global Economy

• Business and consumer confidence has already been negatively impacted by the tariffs.
• International trade and investments are expected to suffer.
• Businesses are hesitant due to uncertainty, potentially leading to stranded assets.
• This could potentially tip both the US and the global economy into recession.

Shifting Global Mindset

A disturbing trend is the movement away from win-win cooperation and deeper integration towards a "me first" win-lose mindset. Some countries are even prepared to use aggressive or coercive means to achieve their goals at the expense of others. A particular concern is the state of the US-China relationship, and any escalation and destabilization of this relationship would have disastrous consequences for the entire world.

Impact on Singapore

The implications for Singapore are considerable. Weaker global growth will reduce external demand for Singapore's goods and services. The outward-oriented sectors of the economy will be particularly vulnerable.

• Singapore may or may not enter a recession this year, but growth will be significantly impacted.
• The original GDP growth forecast of 1 to 3% for 2025 is being reassessed and is likely to be revised downwards.
• Slower growth will result in fewer job opportunities, smaller wage increases, and potentially higher retrenchments if companies face difficulties or relocate.

Singapore's Response: Resilience and Adaptation

In response to these challenges, Singapore is taking several steps:

• A task force, chaired by DPM Gang Kimyong, will be established to help businesses and workers address the immediate uncertainties and adapt to the new economic environment.
• Singapore will forge closer links with like-minded partners committed to open and free trade.
• The country will strengthen its collaboration and integration within ASEAN.
• Singapore continues to take steps to build capabilities in innovation and new technologies, as well as investing in its workforce through SkillsFuture.

Upholding Transparency and Collaboration

The government plans to communicate openly with the public, businesses, workers, and unions, sharing information as it becomes available. It is engaging the private sector and union representatives as part of the task force.

Free Trade Agreement and Economic Emergency

Singapore acknowledges that the US tariff potentially violates the FTA, which provides for zero tariffs on both sides. However, the FTA also allows for exceptions in emergency economic situations. The US has invoked emergency economic powers. Singapore will first consult with the US to understand their concerns before considering further action.

Remaining Resolute and United

The Singaporean government is committed to steering the country through these challenging times, ensuring that no one is left behind. Singapore will keep its economy open, its society cohesive, and its institutions strong, creating new value propositions for businesses and investors. Singapore will stand firm as a beacon of stability, purpose, and hope in a turbulent world, prioritizing the interests of Singapore and its citizens.