Reactions to American tariffs are obviously negative around the world and every country has its concerns about their impact. In Singapore they have coincided with the run up to the General Election this year, and everybody is trying to understand what their influence may be on an entrepôt harbour that depends so much on international trade.
As I explained here the hysteria about the tariffs is blown out of proportion, given numerous other trade barriers that countries around the world already employ to protect themselves.
And for Singapore – which received only the lowest, 10%, additional levy – their direct impact will be minimal, and may even be positive in some ways as I wrote here.
However, the biggest threat for a place like Singapore is never the cost of doing business in or through it. It's the unpredictability of the global situation that reduces business activity across the board.
Activity that Singapore depends on.
Money likes calm
How expensive it is to do business here is determined by the government and local laws. In other words – this competitive advantage is in the hands of Singaporeans.
But when a crisis hits from the outside and everybody is running for cover, all that Singapore can do is sit, watch and wait.
Money likes calm. Business requires the environment to be predictable to plan its next moves. It doesn't even matter how high those new tariffs are but rather how stable they may be in the foreseeable future.
Is this really the "new normal" or is it going to last just a short period of time? Will Trump negotiate? Are others going to retaliate?
These are the questions companies, investors and entire countries are asking themselves now. And as long as they don't have the answers, they are likely to play it safe – and that is a direct problem for Singapore.
We already know that Trump is open to talks with everybody. Vietnam, for example, has already offered to reduce all its tariffs on US imports to zero. Cambodia wants to cut them to just 5%.
As a result, the punitive levies announced on those two countries may soon change. To what levels? Nobody knows, since Trump admin prepared the list on the basis of existing trade deficits rather than tariff rates alone.
Since the problem involves ca. 200 countries and territories you can understand just how unpredictable the final shape of the list may be.
This is why money is running away from the stock markets as well. Investors are cashing in on their gains and waiting for the situation to stabilise again as company executives will have to decide what to do with their international production or where to source resources or components for their products.
As a result S&P500 lost $5 trillion in value in just 2 days (and may drop even more). How long might it take to bounce back? Nobody knows. Could be a week, a month or years.
Where can it bite Singapore? Everywhere.
The situation for the city-state is, at this point, completely unpredictable.
We may be looking at a mere ripple or an outright catastrophe. And nobody can say which it might be with any degree of certainty.
There's no denying, however, that the global economy is a web of interconnections and impact in one place usually affects others to some degree.
And many of them meet in Singapore.
Lower trade volumes will impact the local harbour and airport. They may affect the event sector, with fewer trade shows and conferences throughout the year. Decline in events will reduce the number of visitors, hurting the airlines, hotels and food & beverage industry.
With less business there's a reduced need for employment and thousands of people may soon be made redundant.
Investors, now eager to bring their money here, may dial back their spending as well, putting a halt on the new job openings they announced just months ago.
Gloomy economic situation will also dampen the moods of regular individuals – including the wealthy ones, who are now looking at millions of their net worth being wiped out of the stock markets.
This means lower retail footfall, less tourism, lower sales, lower spending on entertainment, food, alcohol, parties – everything by everyone.
And if people spend less, companies make less, then the government collects less in taxes, creating a gap in the budget.
For a city-state that has a relatively small local population which depends on millions of containers, millions of visitors and billions of dollars flowing through it, this could snowball into a very serious economic problem.
Yes, after decades of prudent saving and investing Singapore has reserves to dip into if needed, but their value is going to be hit by the implosion of the stocks that both Temasek and GIC hold.
It is also hard to say how long such assistance may be needed for.
Turbulence for at least another year or two
With American midterm elections to Congress about 18 months away many decision makers in business and politics around the world may decide to wait Trump out.
Since there is a strong possibility that regular Americans will be angered by higher prices of many goods, they may blow up the Republican majority in Congress and put Democrats back in charge, setting stage for a legal showdown between the legislative and executive branches.
Before that happens US courts may intervene even earlier, as cases against the administration's exercise of emergency powers – used to justify the tariffs – have already been filed.
Legal basis for Trump's decisions is shaky at best, given that the Constitution gives Congress the powers to regulate trade, but it remains to be seen if the Supreme Court is going to second-guess the president acting on what he decided was an emergency.
Meanwhile, some Republicans are showing their opposition to the White House, even though the party has largely supported the president through every controversy so far. This is why Trump may face problems making his tariffs law, which would be harder to challenge in the future (unless Democrats win both chambers of Congress and the presidency in 2028). He might not want to risk getting rebuffed by a few renegade Republicans so early into his term.
As a result it's hard to say how long the Liberation Day announcement may even hold and whether it is not completely nullified in less than two years time.
This is another factor that may encourage international resistance to Trump and limit commitments to address American concerns over trade deficits.
How many companies will put billions of dollars on the line and commit to moving production to the United States if the tariffs could be gone before their factories are even operational?
Until there is legal clarity provided by the Supreme Court or the Congress, few are going to treat Trump's tariffs as the new normal – especially as the announced rates are still subject to negotiation.
This means that the world – including Singapore – may be in limbo for up to two years, by which time tariffs will either be here to stay for at least another two (at minimum until the next elections in 2028) or will have been successfully challenged and revoked.
If they eventually succeed in bringing back some jobs to the US, they may then indeed become the new normal, at the end of Trump's term.
Before that can happen we are looking at multiple chapters of disturbances to international trade for between two to four years, with quite unpredictable consequences for a place like Singapore.
Some are certain to lose, others may benefit, but the outlook at this point is negative – and we don't know just how negative it could be in the end.
