What could Trump's trade war mean for Singapore?

Whatever your personal view of Donald Trump, there’s no denying that the 45th President of the United States has to be taken seriously. By announcing a 25% tariff on the import of steel and 10% on aluminium earlier this year, the present incumbent of the White House made the world sit up and take notice, showcasing what his ‘America First’ campaign mantra means in practice.

Whether you’re a new trader looking into your fx options for the first time, the CEO of an international export business nervously eyeing up your profit margins or a policymaker struggling to understand the new US policy, the threat of a ‘trade war’ is one to take seriously.

That’s especially the case for Singapore. As Channel News Asia recently put it: “Singapore has long embraced – indeed built its entire economy around – a rules-based international order. In fundamental ways, Mr Trump’s approach to trade, and to international rules, is a direct challenge to Singapore’s future.”

So, how would a Trump trade war impact upon the Lion City?

Immediate impact: The TPP deal

While many commentators have been talking up a ‘trade war’ ever since the first announcement of the steel and aluminium tariffs, in truth this could be said to have begun much earlier. One of President Trump’s first acts was to tear up the Trans-Pacific Partnership. The TPP sought to remove tariff and non-tariff barriers between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States.

Straight away, therefore, the Trump regime showed itself to be capable of carrying out a drastic and hostile trade policy. As a signatory state, Singapore was set to benefit from a 1.1% GDP boost according to the World Bank.

However, perhaps it was fitting that the remaining nations revived the sentiment behind TPP and gathered to sign the new Comprehensive and Progressive Agreement for Trans-Pacific Partnership in Chile on the same day as Trump’s trade tariffs were announced. The lack of one of the world’s biggest economies will still lessen the potential impact of such a deal and will have served to make Singapore wary of the Trump White House right from minute one.

Direct impact: Broadcom takeover shelved

Tariffs are not the only part of the ‘trade war’ however. The President has been flexing his muscles in many other eye-catching ways. Notably for Singapore, this manifested itself when he chose to step in and block Broadcom’s planned $117 billion takeover of Qualcomm.

Mr Trump says he took the unprecedented move due to national security concerns, stopping a deal that would have been the largest of its kind in the tech industry.

While Broadcom might be licensed in Singapore, it largely operates in California and might well still be able to conclude the deal through transferring its operations to the US. This does, however, send a message to Singapore’s tech pioneers that expansion and growth in the US might well be tougher under a Trump presidency.

Future impact: Vulnerability to global trade war

Further tariffs or protectionist measures could well have a further impact on Singapore.

Firstly, it’s worth noting that the US is the city state’s fourth largest trading partner. Any attempts to buy less machinery or use fewer commercial products and services could put a dent in this number.

In a wider sense, Singapore is perhaps more vulnerable than most to anything that impacts the wider global system of trade. As stated earlier, it has built its economy around the international consensus that Trump may well try to smash. World Bank figures show that Singapore has a trade-GDP ratio of more than 300%, putting it alongside Luxembourg and Hong Kong as the corners of the world most actively engaged in the global trading infrastructure.

Not only that but, while the US is Lion City’s fourth highest trading partner, China is its highest. China might well be the country Trump has in mind most when drawing up his trade policies but any action that does impact Beijing risks catching the likes of Singapore in the crossfire, intentionally or not.

Singapore has had good relations with the US. Politicians and business leaders face a challenge to ensure that remains the case – and that the state can be sheltered from the fallout of a wider trade war. Whether it’s TPP, Broadcom or the wider system of global trade, what happens next will be of vital importance to Singapore’s economic health.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.