An Economic Analysis: US-China Trade Tensions and Singapore's Future

This essay provides a comprehensive analysis of the impact of the US-China trade tensions on Singapore's economy. It begins by outlining the trade relationship between the US, China, and Singapore, and then delves into the spillover effects of the trade war, including the potential for increased investment in Singapore as companies seek to avoid tariffs and the need for Singapore to improve its technological capabilities. The essay also examines the adverse impacts on Singapore, such as reduced exports, increased trade deficits, and the risk of recession. It concludes by suggesting measures the Singapore government can take to mitigate the negative effects, including strengthening relationships with other trading partners, promoting SMEs, diversifying markets, and implementing expansionary monetary and fiscal policies. The essay highlights the need for Singapore to adopt a neutral political stance and adapt to the changing global economic landscape to safeguard its economic stability. It uses diagrams to illustrate the potential for recession and the impact of expansionary monetary and fiscal policies.

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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1Impact of the US and China Trade Tension on Singapore
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

2Impact of the US and China Trade Tension on Singapore
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

3Impact of the US and China Trade Tension on Singapore
export sector of Singapore got hurt due to this trade tension. The domestic exporting firms are
suffering a loss in revenue. On the other hand import has not decline by the export has declined.
As a result, the trade deficit is increasing in Singapore. To fight the problem of trade deficit the
country imposes tariff on the import products. Therefore, even though there is no trade tension
between China and Singapore the fall in demand has created an effect of indirect tariff on
Singapore. It will lower the economic growth of Singapore and thereby the GDP of the country
will fall (Rosyadi and Widodo 2018). Thus, with induced effect this indirect tariff effect will be
passed to other countries in the world that share trading relation with China or its trade partners.
In this way the trade tension will disrupt the global supply chain and lead to a global economic
slowdown if it persists for long period. The market will become very much unpredictable
globally. Singapore depends on the US for military equipment and due to the existing situation
the price of the product of the US will increase and thereby the expenses of the Singapore
government will increase too (Itakura 2019). On the other hand, due to disruption in the global
supply chain the market of goods and services has become very much unpredictable and thus the
firms are not confident enough to produce at the rate they used to do before the trade tensions.
This has affected the business sentiments and thus the confidence has declined significantly. The
industries in Singapore is suffering from low production, wage cut and threat of unemployment.
The fall in income has reduced the overall GDP of Singapore. Previously, the economic growth
of Singapore has been estimated to be around 1.5% to 2.5% but due to the prolonged trade
tension between China and the US has impacted the country so adversely that the government
reduced the economic growth estimation to 0% to 1.5%. From the estimated growth rate it is
evident that the country is going to face a recession phase in near future if the trade tension
problem is not solved immediately (Evans 2019). However, the positive growth rate the country
is estimating is due to the industries that rely on countries other than China and the US.
Therefore, it can be inferred that the impact of trade tension on Singapore is quite severe.

4Impact of the US and China Trade Tension on Singapore
Diagram 1: Recession
Source: (Created by the Author)
Necessary measures by Singapore government to fight the situation
It is evident from the above discussion that the economy of Singapore will have to face
the adverse effect of the trade tension as it shares trade relationship with both China and the US.
Therefore, considering this the country should take pre-emptive measures in order to avoid to put
the people of the country into a recessionary phase (Liu, Margaritis and Zhang 2019). The
government of the country should thus strengthen its relation with other trading partners such
that they import more products from them and as a result the industries serving them would
improve. In addition to that the country should promote new small and medium enterprises
(SME) such that the domestic market can be saved from the external shocks and in times of crisis
the country may also depend on the SMEs. The export and import market should be expanded
and diversified such that the country have multiple option for trading. By diversifying and
expanding to larger markets Singapore will be able to divide the risk and thus lower the intensity
of possible impact. Emphasis should be given to the technological innovation such that the
country can lower the cost of production by efficient use of resources and their allocation. Thus,
strengthening of R & D sector is a must in this period of trade tension (Bhattacharya, Rafiq and
Bhattacharya 2015). With technological change and innovation of disruptive technologies like

5Impact of the US and China Trade Tension on Singapore
artificial intelligence and robotics the industry is experiencing significant change all over the
world. The period of digitalization is on the peak and it is the time to keep the pace with the
changing industry even during the adverse economic period like the trade tension between the
US and China. The digitalization of the economy will improve the transaction in financial sector,
manufacturing sector and information and communication sector. The country will more rely on
the technology based industries that will be impacted by the trade tensions as it occurs in the case
of manufacturing sector. The government should also take expansionary monetary and fiscal
policies that would help the country to boost the investment internally. The cash rate should be
reduced by the central bank to implement the expansionary monetary policy (Furceri, Loungani
and Zdzienicka 2018). On the other hand, to support the monetary policy the government should
implement expansionary fiscal policy either by increasing government expenditure or by cutting
tax rates. As a result of implementation of these policies the business investment will increase
and thereby output of the country will increase (Jawadi, Mallick and Sousa 2016). Additionally,
the disposable income of the country will increase and thus aggregate demand will rise due to
rise in consumption. Therefore with increase in aggregate supply (AS) and aggregate demand
(AD) the country will experience economic growth.
Diagram 2: Expansionary monetary and fiscal policy
Source: (Created by the Author)

6Impact of the US and China Trade Tension on Singapore
Conclusion
From the above discussion on the trade tension between the US and China it can be
inferred that the countries experiencing adverse economic condition due to unhealthy tariff war.
The tension has started in 2018 and still there significant negotiations between the countries to
put an end to it. Therefore, due to this prolonged period of trade tension other countries that
share trade relations with these two countries suffer the adversities. Among all the counties that
are impacted by the trade tension Singapore is the one that share strong trade relationship with
China and the US and thus there is high probability that the country will go into recession in
future. Therefore, to avoid such economic downturns the government of the country should take
effective measures. The country should invest in technological innovation, encourage SMEs,
digitalization of sectors, establishing trade relationship with more number of countries and
expansion in regional markets.

7Impact of the US and China Trade Tension on Singapore
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9Impact of the US and China Trade Tension on Singapore
Appendix
https://www.straitstimes.com/singapore/us-china-trade-war-could-have-some-positive-spillover-
effects-for-region-experts
https://economictimes.indiatimes.com/news/economy/indicators/singapore-deputy-pm-warns-of-
greater-economic-uncertainty-due-to-us-china-trade-war/articleshow/71419423.cms?from=mdr
https://www.channelnewsasia.com/news/commentary/us-china-singapore-trade-war-impact-
businesses-growth-11820864