Singapore fears 'vicious cycle' of trade measures amidst conflict

Trade minister Chan Chun Sing said this could hit global consumption and trade flows to Singapore.

Amidst ongoing trade conflicts, Singapore’s largest concern is the escalation of the situation into a “vicious cycle” of tit-for-tat measures between major economies, Minister for Trade & Industry Chan Chun Sing said.

In a parliamentary reply, he said should these measures reach a tipping point that triggers a sharp and sustained fall in global business and consumer confidence, or a tightening of global liquidity conditions, the macro-environment will fundamentally change. “In this scenario, the impact on global consumption and investment on top of the disruption to trade flows will significantly impact Singapore’s open economy,” Chan said.

Chan noted that the US-China tariffs directly applicable to Singapore affect a relatively small set of products: solar cells and modules, washing machines, steel, and aluminium. Singapore’s exports of these products to the US account for about 0.1% of its total domestic exports to the world.

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“Whilst this is relatively modest, specific Singapore-based companies in the general manufacturing and electronics sectors that export such products to the US will become less competitive compared to manufacturers in the US when the tariffs are added on,” Chan said. “Our agencies are in contact with impacted companies to facilitate applications for product exclusion and to explore alternative markets.”

Second, there will be indirect impact from tariffs that are not targeted at Singapore, such as those worth US$34b from US and China. With the EU, Mexico and Canada also imposing retaliatory tariffs on the US for the tariffs on steel and aluminium, there is significant risk of widening disruption to supply chains, the minister said.

“Whilst these tariffs do not directly affect our exports, they would have spillover impact due to our role in global supply chains. For example, Singapore companies that produce intermediate goods used as inputs in the production of China’s exports to the US may see softer demand for their goods,” he said.

Moreover, the net impact on the Singapore economy and workers is less easily quantified given the fluidity of the US and China’s tit-for-tat responses. Bilateral trade between the US and China indirectly contributes to 1.1% of Singapore’s GDP.

“The complexity of global value chains is also such that amidst disruptions, there will be potential for firms to mitigate some of the impact by redirecting exports of intermediate goods to other markets,” Chan said.

Amidst these developments, Chan noted the strengths in the composition and features of the economy. “This includes the strong trading networks and diversified sectors we have developed over the years, which will enable companies in Singapore to navigate the disruptions and seek out new opportunities and alternative suppliers and demand markets. Our agencies will continue to facilitate this process and provide support where needed,” he said.

The minister added that Singapore’s trading partners are also constantly looking for opportunities to improve trade links. The EU and China are working to improve trade connectivity between Asia and Europe to increase economic opportunities. A free trade agreement (FTA) is also in place with China, and another that is pending with the EU.

“With the FTAs in place, our companies are better positioned to seek out and benefit from new opportunities arising from new trade linkages and supply chains that are formed,” he said.