Impact of the US and China Trade Tension on Singapore

Running head: Impact of the US and China Trade Tension on Singapore
Impact of the US and China Trade Tension on Singapore
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Impact of the US and China Trade Tension on Singapore1
Introduction
In the world of globalization, every country is engaged in trade with each other and thus
they share trade relations. The trade relations happen on the basis of comparative advantage. The
country that have comparative advantage in production of a good exports that good and import
the goods in which it do not have any comparative advantage. Similarly, under these conditions
the US and China has been engaged in trade with each other for long time (Ray, Gallagher and
Sarmiento 2015). The US have always been a developed country and on the other hand, China
has been developing very fast. The pace of growth of China was so fast that it seems the country
will soon reach the level of the US. It should be noted that economically China is the second
largest country in the world after the US. However, to curb this growth the only option is to hurt
the economy of China and improve the domestic economy of the US to keep the gap between the
countries up. Consequently, the US imposed tariff on the imports from China and as a response
China retaliated by imposing tariff on imports from China (Wu 2016). As a result, export sector
of both the economies get hurt. The tension has been going for a long time now and this will
have a significant global impact. This essay studies the effect of this trade tension of Singapore
considering the spill over effects and economic condition of the country.
Spill over effects on Singapore
It seems that thee trade tension between the US and China not going to end in near future
and thus it will take more severe turns. The US is on the run of increasing tariff on imports from
China. The country has initially impose 10% tariff on Chinese products and with time and the
tariff has gradually increased and reached a rate as high as 30%. It is thus evident that there will
be similar kind of retaliation from the end of China (Noland 2018). Hence, the trade relations
would be completely demolished. Many US companies that operate in the shipping and
electronics industries have production facilities in China but due to the trade tensions between
the countries the cost of production is getting high and along with that, other difficulties are
arising (Lu 2018). It is evident from the case of Huawei a Chinese smart phone company that
uses chips made in the US but after the initiation of trade tensions the US prohibited supply of
chips to Huawei and banned the company in the US (Guo et al. 2018). This has created quite stir
in the economy and affected the company adversely. It is only one instance, there are several
such situations. Therefore, the US companies that are operating in China will now look for other

Impact of the US and China Trade Tension on Singapore2
countries to avoid any adversities that might occur due to the trade tension. Hence, it is the time
for Singapore to strengthen the relationship with the both the countries such that the US and
Chinese companies invest more in Singapore. The US electronics companies produce in Asian
countries due to low production cost and thus the trade tension with China has increased the
investment probability in Singapore. Therefore, it is highly possible that US electronic
companies would move their production facilities to Singapore and might export electronic spare
parts from country. Therefore, there is a high possibility that the manufacturing sector face a
significant push due to this trade tensions. The US and China thus not exchanging any
technology with each other and thus it is time of Singapore to improve its technology and
innovate new things such that the country trade the technological products with the US and
China (Cerutti et al. 2019). Thus, there is significant scope for Singapore to improve its R & D
sector. Due to all these industrial and technological possibilities fund is the basic need and thus
the country have the opportunity of attracting immense investment. However, Singapore should
take neutral political position such that it never seem that it is favouring either the US or China
such that no enmity occurs with these two countries. It is important to gather the spill over effect
of this trade tension condition otherwise the country will not able to gain anything and save it
from the adverse effects of the trade tension (Raghavan and Devadason 2019). The Apple and
IBM has production facilities in China but due to these trade tension, it is possible that they
would try to move their facility to some other country. Thus, it is an opportunity for Singapore to
gain from this spill over effects by attracting these companies in the country for production.
Adverse impact on Singapore
The trade tension between the US and China would impact both the countries adversely.
Consequently, the export sector of the countries would get shattered. This wold lead to fall in
income and thus the GDP of the countries would decline (Liu and Woo 2018). Owing to this the
countries are facing economic slowdown and it impacted the individual income. The instances of
unemployment are very high. Millions of people have lost their jobs in these countries. Hence,
with lower individual income he people would consume less (Li, He and Lin 2018). Therefore,
the demand in the economies would decline. It would impact the import demand of the countries.
Therefore, due to this trade war other economies that share trade relation with these two
countries are facing adverse effects. China is one of the major importer of goods from Singapore
and thus with slowdown in economy China is importing less from Singapore. Therefore, the