US-China Trade Tensions: Spillover Effects on Singapore's Economy

This report delves into the significant impacts of the US-China trade tensions on Singapore's economy, a crucial hub in the global supply chain. The analysis begins by exploring the spillover effects, both positive and negative, including reduced exports, challenges in the shipping industry, and potential shifts in multinational company production locations. The report then identifies key concerns for Singapore, such as disturbed business sentiments, uncertainties in the international business environment, and declining demands in China, especially in the manufacturing sector. Finally, the report proposes responsive measures, including reducing business dependency on the US and China, investing in technological innovations, and diversifying regional markets. The conclusion emphasizes the far-reaching effects of the trade tensions on Singapore's economy and highlights the need for strategic responses to mitigate the economic challenges.

ECONOMIC POLICY AND GLOBAL ENVIRONMENT

US CHINA TRADE TENSIONS AND SINGAPORE 1
Introduction
The US China Trade tensions is one of the significant political and economic event in the
present times, influencing the economies worldwide. Both the countries have engaged in a
bitter trade battle, in which each one is imposing tariffs on the goods of another. The reasons
for the trade tensions are stated to be China being accused of the unfair trade practices in the
US, and the perception in China that the growth of the country as a global economic power
would be curbed by US (BBC News, 2019). The results of the trade tensions among the two
giant economies was in the form of retaliatory trade actions in the form of tariffs, restrictions
on investments and others.
The following work is aimed at shedding light on the various aspects of the US China trade
tensions and the impact of the same on the economy of Singapore. The work would broadly
analyse the spill over effects of the trade tensions on Singapore, the serious concerns in the
Singapore economy, followed by a range of responsive measures and the conclusion.
Possible spill over effects for Singapore
The following segment would be descriptive of the possible spill over effects that would arise
in context of the economy of Singapore. The reason for the spill over effect on the Singapore
country is that the country is a hub for the regional electronics production, financial
intermediation services, air and sea transportations and a significant link in the value chain. In
addition, it is significant to note that the indirect contribution of the bilateral trade between
US and China is the 1.1 percent of the gross domestic product of the country (Kit, 2018).
It is vital to note that the negative spill over effect in the overall terms is in the form of the
deterioration of the trade environment. One of the prime spill over impact that would arise in
the Singapore economy is in the area of Research and Development. It has been stated that
Singapore would benefit from the investments in the Research and Development, and engine
manufacturing in future times from the sides of the United States. However, currently the
country’s exports have drastically reduced amid the spill over of trade tensions, because of
the global contraction in the demands of such commodities due to increased cost of
manufacturing of the same (Chan, 2019). The reason is squeezing demands of the technology
products, and the decreased demands from China. Thus, there is an overall slump in the
electronics.

US CHINA TRADE TENSIONS AND SINGAPORE 2
One of the yet another prime areas where the spill over effects of the trade tensions are
widely seen is that of the Shipping and Maritime Industry. The effect of the trade tension is
negative for the world shipping industry, including that of Singapore, as per the reports of the
United Nations Conference on Trade and Development (UNCTAD) (The Business Times,
2019). The reason for the said negative spill over is that the various trade practices between
the two countries have drastically reduced leading to the reduced flow of shipping business
between two and the other intermediaries. This highlights that the countries like Singapore
were an important component of the supply chain, and changing the whole chain is not easy
and would require considerable investments to do so.
Apart from the above discussed, the next spill over impact of the trade war in context of
Singapore is that shifting of the places of the production of the multinational companies. The
same can be viewed as a positive spill over for the country of Singapore. In the words of the
Monetary Authority of Singapore (MAS), there are numerous US businesses that have
already moved or are considering moving their production houses from China, and the
country Vietnam is on the top of the list because of its location and connectivity in the South-
east Asia region (Mediacorp Pte Ltd, 2018). In such an event of successful relocation,
Singapore would be positively impacted and benefitted from the point of view of the
wholesale trade, and the transportation and the storage services due to the central hub status
of Singapore. Hence, it can be stated that there are mix of positive and negative spill overs of
trade tension among US and China, for the country Singapore.
Serious concerns of the Singapore economy in event of escalation in
trade tension
The segment would highlight some of the key concerns that would arise if the US China trade
tensions further escalate. The prime concern for the Singapore economy is in the form of the
disturbed business sentiments. In the words of the Permanent Secretary of the Ministry of
Trade and Industry (MTI), loss of business confidence is the most crucial outcome of the
trade tensions, because of the Singapore economy stuck in the cross fire and the same can
pose serious threats in future too (The Singapore Contractors Association Ltd, 2017). The
concern is serious in terms of the economic growth rate of the country being forecasted to 2.5
percent only as was in the year 2018, in spite of the strong financial performances across
various sectors.

US CHINA TRADE TENSIONS AND SINGAPORE 3
Apart from the poor business sentiments, the yet another probable concern for the economy
of Singapore is in the form of the dooming uncertainties in the international business
environment. It is vital to note that According to a report by Bloomberg Economics, it has
been estimated that the uncertainty because of the US China trade tensions can lead to
lowering of world gross domestic product by 0.6% in 2021 (Bloomberg, 2019). Thus, as the
world economy would be impacted to the tune of the monetary equivalent of $585 billion off
the International Monetary Fund, so the Singapore economy would be affected too. The
concern of uncertainty is further heightened due to the fact that it has been complex for the
economists of various countries including Singapore to weigh the effects of trade wars due to
series of escalations from both the sides, leading to volatility in the financial markets as well,
and an overall unexpected consequences (South China Morning Post, 2019).
The yet another serious concern for the economy of Singapore if the said trade tensions
escalate more in the future is that the demands of the imported products is declining in China
rapidly. It is vital to note that the economy of China is growing at its slowest pace in the last
30 years, as the country is unable to stable the operations in light of the US response to the
trade war. As per the reports of the China’s National Bureau of Statistics, while there was a
reduction of the retail sales growth, to fall to 8.2% over a period of one year, there was also
reductions in the Factory output growth, investment in factories, real estate and other fixed
assets as well (Davies, 2019). Thus, as the growth rates of the country China have declined
considerably since the onset of the trade war, so the impact would be transferred on the
partnering nations as well including Singapore. The most affected sectors of the Singapore
that would be because of the Chinese economy slowdown are that of the manufacturing.
Thus, in events of further escalations, the above mentioned key concerns would heighten for
Singapore economy.
Range of responsive measures to be undertaken by the Singapore
government
The above sections highlighted the spill overs of trade tensions, and the concerns for the
economy of Singapore. The below segment would shed light on the measures that would
facilitate the government of Singapore to absorb the shocks in the international business
environment due to the US China trade tensions.
The first key recommendation to the regulators of the business environment as well as to the
multinational companies is that the country Singapore must limit its business dependency on

US CHINA TRADE TENSIONS AND SINGAPORE 4
countries of US and China majorly, and must be open to all the countries, which included the
European countries. This will widen the landscape of the business opportunities for the
country Singapore, and limit the exposure of the risks because of tariff increases and
volatility of a single market. In the present scenario, the country Singapore is largely
dependent on China for the electronics market and thus, the trade tensions have the potential
to directly impact the Singapore markets and economy, because of major exposure. Such
business exposure must be reduced.
In addition to this, the next key step would involve investments in the technological
innovations within the country itself. It is an undeniable fact that the US China trade war is a
war for the attainment of the supremacy in terms of the technological innovation (Nikkei Inc.,
2018). Thus, both the giant economies are trying to limit their interdependence on each other
in trade terms. The said international dependency on the other countries can only be limited
only when an economy is sound in terms of the horizontal and the vertical aspects of the
business integration, by the use of the technological innovations. Thus, the next responsive
measure that has been recommended is that the country must invest in the technological
advancements so as to limit its dependency to the maximum extent possible on not only
China and US, but other countries as well.
The last responsive measure that is recommended is that the country Singapore must engage
itself in the diversification of the regional markets. As stated in the earlier parts, the county
Singapore is awarded with the hub status in the region of Asia and provides connectivity to
China and other regions of the world. Being in the status of central hub, the country is in a
strong position of exercise control over supply chain and warehouses, along with
transportation. The country should use such position to develop strong international business
region within Asia itself and diversify in the medium and small surrounding countries and
regions. The said diversification would absorb the shock resulting from disturbances from
one of the business relationship, and the overall international trade growth and amount would
be balanced. Hence, there are various responses that can be adopted to avoid such spill overs
of trade tensions for country Singapore.
Conclusion
The discussions conducted in the previous parts aid to conclude that US China trade tensions
have led to the critical impacts on the various economies across the globe, including that of
Singapore. The work evaluated the fact that the said trade tension is just not limited to the

US CHINA TRADE TENSIONS AND SINGAPORE 5
two giant economies only, rather the effects are far reaching both in direct and indirect forms.
The mix of negative and positive spill overs for Singapore are elaborated due to the hub
status of country. Further the work explored the various concerns that are crucial for the
economy of Singapore, if the said trade tensions escalate even more in future. The crucial
concerning points are that of uncertainty of the stands of US and China and the impact in
global economy, the falling demands in the Chinese markets, and an overall poor business
sentiments in China as well as the global business environment. In addition to the above, the
work highlighted the responsive measures to minimize the shock of the said trade tensions.
The key responsive measures that were highlighted in the work included technological
innovations, staying open to all countries, and simultaneously expanding in the regional
markets. Thus, it would be right to conclude that US China trade tensions have shaken the
Singapore economy as well to an extent.

US CHINA TRADE TENSIONS AND SINGAPORE 6
References
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US CHINA TRADE TENSIONS AND SINGAPORE 7
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