US-China tariff truce boosts Singapore’s trade outlook

[SINGAPORE] Singapore's export-driven economy is seeing a more optimistic outlook as the world's two largest economies de-escalate their tariff dispute, which had threatened to disrupt global trade and possibly trigger a worldwide recession, analysts said.

On May 12, the US and China agreed to suspend their respective tariffs for 90 days, replacing them with significantly lower rates while they continue negotiations for a broader, long-term trade agreement.

This temporary pause follows months of escalating tensions that had strained global supply chains, especially in the technology and manufacturing sectors, where both nations are deeply intertwined. Singapore, as a major trade and logistics hub, had been caught in the middle, with its non-oil domestic exports experiencing a significant slowdown in recent quarters due to reduced demand from China and other regional partners.

Under the temporary deal, tariffs on US exports to China will be reduced from 125 percent to 10 percent, while tariffs on Chinese exports to the US will drop from 145 percent to 30 percent.

However, some analysts have cautioned that initial excitement surrounding the agreement may subside as the reality sets in that 90 days might not be enough to resolve the structural issues between the two countries, which have been engaged in a trade war since 2017. These unresolved issues, including intellectual property disputes and China's state subsidies for its domestic industries, could resurface, potentially leading to another round of retaliatory tariffs.

For Singapore, prolonged uncertainty could delay investment decisions in key sectors such as electronics and precision engineering, which rely heavily on stable trade flows.

Nevertheless, the temporary truce offers relief to investors who were facing a scenario where US consumers could have faced steep price increases and empty store shelves, while China could have suffered a loss of its biggest export market and a decline in manufacturing output.

"The US-China trade deal is a significant de-escalation and allows trade to resume from what was essentially a standstill," said Chua Hak Bin, regional co-head of macro research at Maybank.

Chua acknowledged that a 30 percent tariff on Chinese exports is still relatively high compared to the 10 percent faced by most other countries, including Singapore, but it is much more manageable than the previous 145 percent rate.

The truce has already sparked cautious optimism among Singaporean exporters, particularly in the biomedical and chemical sectors, which had been dealing with higher operational costs due to disrupted supply chains. Industry groups are now urging businesses to take advantage of this period to diversify their markets and reduce over-reliance on any single economy.

Adam Pickett, who heads Citibank’s global macroeconomic strategy, noted that the reduction in US tariffs on China effectively lowers the tariff rate from 25 percent to 12 percent, considering both the tariffs on final products and on imported inputs used in production.

“This is a game changer for tactical risk,” Pickett said, referring to assets such as currencies, credit, stocks, and commodities. Following the announcement, the US dollar strengthened against major currencies, ending a period of decline. The rally contributed to a slight easing of the Singapore dollar against the greenback.

However, analysts warn that currency markets could remain volatile as traders assess whether the tariff reductions will lead to a sustained economic recovery. The Monetary Authority of Singapore (MAS) is expected to maintain a neutral stance on the Singapore dollar, prioritizing stability amid fluctuating global trade conditions.