The optimistic case for Singapore’s economy in the second Trump presidency
Stronger buy-in for capitalism, pro-business policies and peace can help the Republic
THE US stock market and currency rallied strongly in the immediate aftermath of the US elections, which brought about Donald Trump’s return to the White House. Singapore’s equities market also generally reacted positively to his win, which will see him inaugurated as president for the second time in January 2025.
However, many economists are worried over his policies. Could swinging tariffs on imports – particularly from China – slash global economic growth? Meanwhile, lavish tax cuts may lead to a burgeoning fiscal deficit and higher inflation.
With the possibility of a unified government in the US and a new administration that is ready to hit the ground running, much of the world is looking anxiously at the potential adverse impact of Trump’s policies.
Given that Singapore’s economy is highly dependent on external forces, including an open, rules-based trading system, will the economy flounder in the next Trump presidency? Possibly not. In fact, there can be room for optimism for Singapore’s economy from a new US administration with a hard-nosed domestic focus on making America great again.
Protectionism
One, a more insular US that embraces protectionism spells bad news for China and the rest of Asia. Higher tariffs could also hurt US consumers by raising prices, but Trump’s policy to encourage drilling of oil may help in managing inflation.
Meanwhile, a more protectionist America could prompt China to aggressively stimulate its economy and grow domestic consumption. A Chinese economy buoyed by stimulus measures and a China that works to deepen engagement with South-east Asia as it further decouples from the US could be positive for regional growth.
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As the US raises trade barriers, Asian countries may double down on strengthening trade ties among themselves, and Singapore can play a major role in this process as an efficient and trusted connector.
More crucially, the world benefits if Americans feel a greater sense of security because of tighter border controls and the return of manufacturing jobs to the US – even if the services sector is a much bigger driver of the economy. After all, as the use of artificial intelligence threatens jobs, workers may embrace leaders who are committed to protecting jobs.
If forgotten parts of America get a psychological boost from the next Trump presidency, this can improve social cohesion in the US and strengthen support for capitalism – which in turn will help the global economy.
Indeed, Singapore, as a major business hub, benefits if there continues to be robust buy-in for capitalism worldwide, instead of fraying societies turning anti-business.
Taxes and regulations
Two, the US already runs a high fiscal deficit. Extending the Tax Cuts and Jobs Act, with lower marginal income tax rates for individuals and tax breaks for businesses, as well as the introduction of other tax breaks, could have inflationary effects.
However, given the US dollar’s indispensability, bond markets can possibly live with massive US fiscal deficits and not fret too much over the government’s credibility as a borrower.
There might be scope for big fiscal savings if the Trump administration makes progress in halting the ongoing wars in Ukraine and the Middle East.
Also, the incoming administration could make inroads in trimming the size of government. Intriguingly, the world’s wealthiest man and staunch Trump supporter Elon Musk may play a major role in shrinking the size of federal agencies and making government more efficient.
Sure, room for lower interest rates may be limited if economic growth gets propelled by tax cuts. Still, rolling back the size and reach of the state and having a tax-friendly environment could spur businesses to invest more on growth; it may also encourage entrepreneurism.
And the message of low taxes and more relaxed business regulations may spread from the US to the rest of the globe, thereby injecting vibrancy into private businesses. In fact, taxpayers in many countries will look at the US enviously if the Trump administration makes good progress in cutting the cost of bureaucracy.
As a business and financial hub, Singapore gains from business leaders everywhere embracing the animal spirits fuelled by small government, low taxes and light regulations.
Ongoing wars
Three, a new Trump presidency might gift the world a peace dividend. Trump trumpeted the absence of major military conflicts when he was previously president and has vowed to quickly halt the wars in Ukraine and the Middle East.
Ending the Ukraine war can provide a major fillip to many slow-growing European economies that are burdened by higher military spending. On a wider scale, ending ongoing military conflicts, which drive up prices of certain resources and disrupt supply chains as well as transport routes, can help lower inflation and boost confidence of consumers and businesses.
If global trade is boosted from the ending of ongoing wars, Singapore as a key global trading node will benefit. Moreover, a more confident consumer in the western developed world spells good news for South-east Asian economies.
While trade barriers rise and some countries turn more inward looking, the world remains highly interconnected.
If Singapore continues to assiduously build relationships with the twin powers of the US and China, the major powerhouses such as the European Union, Japan and India, as well as regional neighbours and other countries, this little red dot can still add value to many businesses.
In a world prone to greater political instability, Singapore’s political stability and social cohesion are major selling points. As the country turns 60 in the year of Trump’s return to the White House, there are reasons to be optimistic over our economic prospects in a changing world.
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