American politics usually have limited impact on the rest of the world. But what’s happening in the U.S. right now has the potential to affect Singapore – in particular – because of the anti-free trade stance of U.S. President-elect Donald Trump.
Trade through Singapore accounted for 326% of the country’s GDP in 2015 – the third-highest ratio in the world, after Hong Kong and Luxembourg. In fact, that figure has been at 300% or higher for Singapore since 1976, according to data from the World Bank (except for 1986 when it was 295%). The trade-to-GDP ratio reflects how open a country is to international trade – and it also shows how much an economy relies on trade.
Since trade plays such an outsized role in Singapore’s economy, any threat or change to the global trade regime has the potential to have a bigger impact on Singapore’s economy than just about anywhere else in the world.
With that in mind, here are three ways a Trump presidency could impact Singapore:
1. No more TPP
In October 2015, the U.S. government signed the TPP (Trans-Pacific Partnership) along with 11 other nations, including Japan, Australia, New Zealand, Malaysia, Vietnam and Singapore. The TPP’s goal is to make it easier for the participating countries to trade with each other by reducing or removing tariffs and other barriers to trade.
The World Bank has estimated that the agreement could raise GDP by an average of 1.1% in each participating country by 2030. The 12 signatory countries account for approximately 40% of world GDP and 25% of global exports. That’s a lot of potential trade that could benefit Singapore.
But in Trump’s eyes the TPP is “a terrible deal” for the U.S. One of his biggest issues with the deal is that he said that he thinks China (which is not a TPP signatory) would somehow benefit from the TPP through “the back door and totally take advantage of everyone.” (He may be right about that, as we wrote here.)
And now that Trump will be the next U.S. president, the deal is dead in the water. The signatories in Southeast Asia, including Singapore, that hoped the deal would increase trade and grow their economies, will be the big losers in Trump’s ongoing issues with China.
2. A U.S.-China trade war
On the campaign trail, Trump took a hard stance on a wide range of policies. Most relevant to Singapore were his claims that Asia – specifically China – is a main cause of America’s problems. He thinks Asia has stolen America’s manufacturing jobs.
He also thinks China has been intentionally manipulating its currency lower, in order to make its goods cheaper to the world. As a result, Trump has said that he wants to slap import tariffs on Chinese goods to make U.S. goods more competitive.
This could bring the two countries closer to a trade war, in which they’d put tariffs or quotas on each other’s imports and exports. This wouldn’t be good for anyone – including Singapore. That’s because higher tariffs or quotas will slow global trade. And, as mentioned, few countries benefit from global trade more than Singapore.
Even though Singapore is not a major manufacturing centre, a lot of what is produced in other Asian countries passes through Singapore on its way overseas. A slowdown in Asian manufacturing means a slowdown in Singapore trade.
3. A shift in the Singapore-U.S. trade relationship
The U.S. is Singapore’s fourth-largest trading partner as measured by total trade (imports plus exports). Trade between the two countries is dominated by the exchange of different kinds of machinery and commercial services, according to the Office of the United States Trade Representative.
(China is Singapore’s biggest trading partner. This again shows how much of an impact a trade war between Singapore’s largest and fourth-largest trading partners would have on the local economy.)
Under Trump, the U.S. may decide to encourage more manufacturing at home. Or, it could impose new, higher tariffs on goods produced anywhere in Asia, not just China. In either scenario, Singapore’s trade relationship with the U.S. would change for the worse, at least from Singapore’s perspective.
Or… it might not be that bad
Of course, Trump may have been all rice and no chicken on the campaign trail. He may not follow through on everything (or even anything) he said or threatened. He is known for speaking off the cuff and taking back things he previously said.
Plus, he was a successful businessman. If he likes a deal, he’ll take it. So despite all his bluster, Trump may end up taking a more pragmatic approach to the U.S.’s trade relationship with Asia once he takes office.
But based on what he’s already said, the new American president could cause some major headaches for Singapore.
For all the details on what a President Trump will mean for Singapore and the rest of Asia, and how you can protect your portfolio, make sure to read our free report on how “Asia is Trumped!” You can download your copy here.