Singapore is concerned about tariffs, but Trump has his own reasons

[SINGAPORE] The global trade landscape is increasingly defined by competing national interests, as exemplified by recent US-China tensions and Singapore’s cautious response. US President Donald Trump’s tariffs aim to address a $1.1 trillion merchandise trade deficit, driven by China’s export dominance and state-subsidized industries. Singapore’s Prime Minister Lawrence Wong, representing a trade-reliant nation, warns against protectionism, arguing that trade deficits are not inherently harmful—a stance supported by Singapore’s consistent surpluses.

Maria Pagan, former US ambassador to the WTO, acknowledges America’s legitimate grievances with China’s non-market practices but cautions against abandoning multilateral frameworks. She highlights systemic issues, such as China’s classification as a “developing country” despite its economic heft, which skews WTO negotiations. Meanwhile, Trump’s tariffs have disrupted global supply chains, prompting nations to seek bilateral deals outside traditional forums.

The data underscores contrasting trade profiles: the US struggles with chronic deficits despite services-sector strengths, while China leverages manufacturing prowess and subsidies to maintain surpluses. Singapore, with its $63.1 billion merchandise surplus in 2024, exemplifies how open economies can thrive through balanced trade. Yet Trump’s unilateral measures challenge the post-WWII order, risking fragmentation in global commerce.

Implications

For Businesses: Supply chain diversification is now imperative. Companies reliant on US-China trade face higher costs and uncertainty, pushing them to explore alternatives in Southeast Asia or domestic production. Exporters in sectors like semiconductors may benefit from reshoring incentives but must navigate geopolitical risks.

For Consumers: Tariffs could inflate prices for imported goods, particularly electronics and machinery. However, localized manufacturing might eventually lower costs in key markets. In the short term, inflationary pressures could strain household budgets in deficit-heavy economies like the US.

For Policymakers: The WTO’s relevance hinges on reform. Addressing China’s subsidies and transparency gaps requires multilateral cooperation, yet unilateral actions like tariffs risk eroding trust. Smaller nations like Singapore advocate for rules-based systems but may pivot to regional partnerships if global frameworks falter.

What We Think

The US-China trade war reflects a deeper clash between market-driven and state-capitalist models. While Trump’s tactics are disruptive, they expose flaws in a system that allowed China to leverage WTO loopholes. “Rules written for market economies do not apply in the same way to non-market ones,” as Pagan notes—a critique even critics of Trump’s approach must grapple with.

Singapore’s surplus-driven prosperity offers a counter-narrative: trade deficits aren’t inherently negative if balanced by services or investments. However, its small size limits relevance to larger economies. The real risk lies in a fragmented global order where might outweighs rules, disadvantaging smaller players.

Reforming the WTO to address non-market practices and outdated classifications is urgent. Yet unilateralism risks a vicious cycle: tariffs beget retaliation, undermining the very growth Trump seeks. The path forward demands nuanced diplomacy—a challenge for leaders navigating an era where national interests and global stability increasingly collide.