Singapore could face higher costs, slower growth as Trump’s win heralds a protectionist shift
An increasingly unpredictable geopolitical landscape could push the Republic to seek new partnerships, says one analyst
THE export-driven Singapore economy is bracing for the likelihood of higher tariffs globally as Donald Trump returns to the White House to serve a second term as US president, four years after Joe Biden evicted him.
Trump swept 295 electoral votes, more than the 270 required to be president in the 538-member electoral college; Democratic nominee and Vice-President Kamala Harris was at 226 seats.
For Singapore and Asia, the primary concern of a Trump presidency is how it will affect regional trade, given that he has said he will impose heavy tariffs on China, noted Edward Lee, Standard Chartered’s regional head of research for Asean and South Asia.
The former president previously said that he plans to slap tariffs of 60 per cent or more on Chinese imports, and wants to impose a blanket tax of up to 20 per cent on all other imported goods.
If this happens, “Singapore, being a trade-reliant economy, will be affected in the short term”, said Lee. “Moreover, Asia’s economic dependence on China is high and a hit to China’s growth will also affect Singapore.”
The impact of higher tariffs will “not be insignificant for the region”, said OCBC chief economist Selena Ling.
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While Asean economies, including Singapore, may have benefited from the “China plus one” diversification strategy in the past, they may not get a free pass during a second Trump term, she added.
These economies may instead become targets for the blanket tariffs the former president is contemplating on all US trading partners, noted Ling and OCBC economists Lavanya Venkateswaran and Jonathan Ng in an Oct 30 report.
Moreover, Trump’s pledge to crack down on tariff evasion and trade diversion could result in collateral damage on Asean as it would discourage Chinese manufacturing investment in the region, said Maybank regional co-head of macro research Chua Hak Bin.
For Singapore, the impact of tariffs is more uncertain, said Ling, given its existing free trade agreement (FTA) with the US. This means that for the US to impose tariffs on Singapore, the US-Singapore FTA would have to be amended – and it is unclear, based on the clauses of the agreement, whether this can be done.
Under a scenario where tariff increases are limited to China, which is OCBC’s baseline case, Ling expects Singapore’s 2025 full-year growth to be limited to 0.4 percentage point lower than the bank’s baseline forecast of 2.7 per cent.
But if Trump imposes tariffs of 10 per cent on all US trading partners, including Asean, Singapore’s growth could slow to 2 per cent year on year in 2025. If he were to impose tariffs of 20 per cent, full-year 2025 growth could slow to 1 per cent.
Singapore Business Federation’s Kok Ping Soon noted that these tariffs could raise production costs across many sectors in the US, as capital and intermediate goods make up more than half of US imports. Businesses might face higher costs and limited market access.
He added that trade-dependent economies like Singapore will be more vulnerable to such global fragmentation risks, and that “businesses would need to relook at their supply chain, examine how its different parts could be affected by tariffs or future protectionist measures, and consider mitigating measures such as alternative sourcing or re-shoring to the US if that is their primary market”.
Investment flows
A second Trump term will also herald more isolationist US policies, which could dampen regional trade and reduce foreign direct investments to Asean, as it will incentivise American companies to on-shore investments, said Dr Chua.
A more protectionist US could also produce a major deflationary shock as China’s excess supply is diverted from the US to third countries, he added.
As for sectors which will be most affected by a Trump win, Moody’s Analytics economist Denise Cheok said sectors such as tech and finance, which depend on the openness of the global economy and predictability of policymaking, would likely be the hardest hit.
Trump had also previously said that he wants to take a more active role in the US Federal Reserve’s policies. If he makes good on this promise, general instability in the financial markets would be a blow to the key financial sector, she said.
That said, OCBC’s Ling noted that Trump had similarly threatened to replace the Fed chair during his last term, yet ultimately did not do so.
“Since the Fed is already cutting interest rates, he may heed sound counsel and leave the Fed alone for the moment,” she said. The question is whether tariffs will reignite inflation and complicate the picture for the Fed, such that the central bank cannot cut rates as much as it intended.
Foreign relations
A second Trump presidency will usher greater unpredictability and diminish support for international institutions such as the World Trade Organization and the United Nations, noted NUS associate professor of political science Chong Ja Ian.
This is less advantageous for small actors like Singapore, which rely heavily on a rules-based multilateral order, he added.
Should trust in these institutions and systems be irreparably damaged, Singapore may have to find other ways of doing business, said Prof Chong. This could mean finding other partners that align with its interests to work with.
As for Singapore’s relations with the US, Singapore Management University associate professor of law Eugene Tan said Singapore’s longstanding foreign policy tenet is to work with any elected administration in the US.
“While there may be an unarticulated preference for one presidential candidate over the other, the common interests and shared purpose that both countries have will mean that ties will minimally be kept on an even keel,” he said.
The big challenge, added Prof Tan, lies in ensuring that the incoming administration in a deeply divided US will continue to maintain an active and purposeful engagement in South-east and East Asia.
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