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The Big Read: US-China trade war not hurting S’pore much yet, but beware the long sting in the tail

While Singapore has been minimally impacted by the US-China trade war so far, it stands to suffer because it is so plugged into the global economy. Until cooler heads prevail, trade-dependent nations like Singapore are in for a bumpy ride amid waves of uncertainty.

The ongoing trade war between the US and China has had" limited" direct negative impact on Singapore's economy thus far – MTI estimates that a "modest" 0.1 per cent of domestic exports are affected by the tariffs – but experts say that the impact remains to be seen, given the intricacies of the global trade system.

The ongoing trade war between the US and China has had" limited" direct negative impact on Singapore's economy thus far – MTI estimates that a "modest" 0.1 per cent of domestic exports are affected by the tariffs – but experts say that the impact remains to be seen, given the intricacies of the global trade system.

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SINGAPORE — Solar energy firm REC Group wears its award-winning “TwinPeak” solar modules like a badge of honour.

Made in Singapore, these modules can harness more sunlight than the standard module by using half-cut polysilicon cells, for example.

Their split sections also allow continuous generation of electricity in shaded areas.

The modules have been a popular choice among customers in the United States, said the Norwegian firm, which bases its operational headquarters here.

However, the modules are now among thousands of products targeted in a wide swathe of tariffs imposed by the US.

Tariffs are used to restrict imports by driving up their prices, thus making them less attractive to consumers.

More than seven months since it launched an appeal with the US Trade Representative, REC Group — which is the only manufacturer of solar panels in Singapore — has still not been granted an exemption from the tariffs.

The firm's spokesman said it will continue to work on the process with the relevant authorities “inside and outside the US”, including the US Trade Representative and the Singapore government.

As the US levies tariffs on goods from China, Europe and elsewhere — and retaliation in kind follows from the affected countries — there are fears that Singapore’s economy could suffer collateral damage, given the complexity of global supply chains and the increasingly inter-linked nature of world trade.

Thus far, Singapore has been minimally impacted, the Ministry of Trade and Industry (MTI) said in response to TODAY’s queries.

Indeed, just as some firms such as REC have been hurt in the tariff tit-for-tat, others stand to gain.

But one thing is for sure: If a full-blown trade war erupts, Singapore, even if not directly targeted, stands to suffer because it is so plugged into the global economy.

An MTI spokesperson said the Government’s economic agencies are in "close contact" with firms in Singapore that may be adversely affected by the tariffs.

"Singapore has also registered our concerns with the relevant US and China departments and is continuing to engage them," said the spokesperson, who did not respond to a query on the number of firms affected.

In January, US President Donald Trump's administration fired its opening salvo at imported washing machines and solar panels, on the basis that these foreign products are a "substantial cause of serious injury to domestic manufacturers (in the US)".

While targeted primarily at China and South Korea, the tariffs on solar panels and washers — as well as those imposed on aluminium and steel last month — punish firms worldwide, except those that have been granted exemptions.

Within a few months, the number of products affected by the US-China trade war has grown to now stand at over 1,500, amounting to a combined US$100 billion worth of trade between the two economic superpowers.

At the same time, the White House is also waging other trade wars with Canada, Mexico and the European Union (EU).

The MTI spokesperson said that the ongoing trade war between the US and China has had “limited" direct negative impact on Singapore's economy to date.

The ministry estimates that a "modest" 0.1 per cent of the Republic’s domestic exports are affected by the tariffs.

Still, the Government remains "concerned" by the tariff measures taken by the world's two biggest economies, and the mounting trade tensions between them.

"These can have negative spillover effects on global supply chains and dampen investor and consumer confidence, in turn weighing on global growth... We hope that countries will exercise restraint and avoid further escalation of tensions," said the spokesperson.

REC Group's solar panel plant in Tuas. The company has launched an appeal with the US Trade Representative to exempt two made-in-Singapore crystalline silicon photovaltic products from the tariffs. Photo: REC


Nevertheless, how the trade disputes could impact Singapore firms will vary, depending on their products, the role in the value chain, and their primary markets, among other factors.

While REC Group, for example, may see shrinking revenue streams from its US market, other players in the solar industry here — which are typically involved in assembling rather than manufacturing solar panels — see some opportunities as a result.

If consumption of China-made solar panels in the US falls, the Chinese manufacturers would have a surplus of supply, hence driving prices down for other export markets.

This could in turn allow Singapore firms to extend better discounts to its customers.

"The tariffs dispute actually benefits solar developers like ourselves," said Mr Frank Phuan, chief executive officer and co-founder of sustainable energy firm Sunseap.

If the tariffs make Chinese exporters less competitive, they could also allow Southeast Asian companies to make inroads into the American economy, said trade economists.

While the term “trade wars” often ignite negative sentiments, they may not be all doom and gloom, said DBS economist and executive director Irvin Seah.

He noted that Singapore may benefit from “trade diversion”, if Chinese firms currently operating in the US relocate their operations to South-east Asian countries such as Vietnam and Thailand, where production costs are low.

“These firms may not produce their goods in Singapore, but could set up regional headquarters here, given that we are known to be good for trade financing… Hence, Singapore could benefit from this reshuffling of the global supply chain,” said Mr Seah.

However, if more products get pulled into the trade disputes, experts said Singapore firms that are involved as upstream suppliers in the value chain could see their order books take a hit.  

Already, Singapore-listed commodity and agribusiness firms, such as Wilmar International, have seen their stock prices fall in April following the tariff announcements.

A broader cause of concern is how mounting trade tensions have led to greater levels of uncertainty across the world.

"This will lead to postponed investments. Companies are likely to adopt a wait-and-see attitude to see if tensions resolve and a grand bargain can be found... Given that global trade is so interconnected, all economies will be impacted. No one is going to be immune," said Mr Eduardo Pedrosa, Secretary-General of the Pacific Economic Cooperation Council (PECC).


Since his presidential campaign in 2016, Mr Trump has favoured a protectionist trade policy, an approach which he says is aimed at reviving the US domestic industry.

In particular, his country's widening trade deficit with China drew the president's ire, prompting him to impose tariffs on US$50 billion of Chinese imports over 1,100 product lines, ranging from consumer electronics, agricultural products to sporting equipment.

These are expected to set in this coming week.

After Beijing responded in kind on June 16, announcing that it would impose its own tariffs on 545 categories of US products worth US$34 billion, Mr Trump threatened three days later to slap more tariffs on another US$200 billion worth of Chinese goods.

Washington's trade deficit with Beijing — which refers to the excess of the US' imports over its exports for goods and services — rose to a record high of US$375 billion last year.

Apart from narrowing the trade imbalance, Mr Trump wants to restrict Chinese investment in the US, as “punishment” for what the White House alleged to be China's “theft” of American intellectual property.

According to US trade officials' seven-month investigation into China, directed by Mr Trump, China imposes foreign-ownership restrictions to compel American firms to share technology with Chinese companies, in exchange for access into China's vast and growing market.

President Donald Trump and his Chinese counterpart Xi Jinping at a meeting in Beijing in November last year, before the trade war started.   Photo: Reuters

While China may be its prime target, the US has not spared the rest of the world.

US' overall trade deficit in goods and services with the world has also spiked 12.1 per cent to US$566 billion last year, the largest gap since 2008.

In January, it imposed steep tariffs on all imported washing machines (up to 50 per cent) as well as solar cells and panels (30 per cent) on the basis that both types of imports “are a substantial cause of serious injury to domestic manufacturers”.

From June, the US also slapped tariffs on steel (25 per cent) and aluminum (10 per cent) imports from Canada, Mexico and the EU, in the interest of “national security”. The global oversupply of these commodities has “weakened (the US') internal economy” and “threaten to impair national security”, the Trump administration had said.

Mr Trump also called for the re-negotiation of the North American Free Trade Agreement — the world's largest free trade bloc comprising the US, Canada and Mexico — labelling it “the worst trade deal the US has ever signed”.


While small states such as Singapore may not be on the front lines of the Sino-American tit-for-tat, the Republic will inevitably suffer collateral damage as an economy highly dependent on trade.

China and the US are Singapore’s top and fourth trading partners, respectively.

The MTI spokesperson cautioned: “Should there be a significant impact on global trade and global growth, both big and small economies alike will be affected.”

Trade economists approached by TODAY agreed that Singapore, as one of the world’s top transshipment hubs, could be negatively hit by growing economic uncertainty and lower investor confidence worldwide.

Firms here that supply component parts for assembly in China could also see their order books take a momentary hit, they said.

Broadly speaking, they expect impact on firms here to be “minimal” to “moderate”.

Forecasting the extent of impact on each sector is a tall order, said observers who spoke to TODAY.

They noted that it depends on the product, how much demand changes in response to price hikes, and whether substitutes are readily available, among other factors.

According to the United Nations’ Comtrade Database, the Republic’s exports to China last year amounted to S$54 billion, up 22 per cent from the previous year.

Singapore’s exports to the US totalled up to S$24.2 billion last year, up 7 per cent from the previous year.

Electrical machinery, industrial machinery, oil and mineral fuels, and precision instruments are among the most traded goods in Singapore.

While the observers were divided on the extent of harm the trade spat can “indirectly” cause to Singapore, they agree that the dampening of global sentiments could act as a “drag” on the Republic’s trade-driven economy.

“Products and services are often no longer made in any one place. They are made of raw materials processed in different locations around the world, and then assembled before reaching consumers… Singapore is a key transshipment hub in the world, and lower trade volumes (across the world) will have a knock-on effect on that,” said the PECC's Mr Pedrosa.

Mr Frank Debets, managing partner of PricewaterhouseCoopers’ Worldtrade Management Services, reiterated that it is hard to ascertain how “badly hit” Singapore may be when there are many moving parts. “Although Singapore is an open economy and relies on international trade for a significant portion of its Gross Domestic Product (GDP), it is also strong in other economic areas that are not so affected by the current trade tensions.”

It may be better to analyse impact on specific firms or industries, rather than countries as a whole, said Mr Debets.

‘NEGLIGIBLE’ IMPACT FOR NOW, SAY S’PORE FIRMS Speaking to TODAY, firms in the solar and electronics sectors said they expect the impact to be negligible in the short run.

Most firms that deal with solar cells here — with the exception of REC Group — do not manufacture them, and are thus not directly hit by the tariffs.

Mr Christophe Inglin, managing director of renewable energy installer Energetix, said the tariffs on non-US solar manufacturers could actually benefit his business slightly.

“We source some equipment from the US, but not much… Tariffs imposed by the Trump administration will reduce imports to the US, leaving manufacturers with more capacity to supply to non-US markets, which could slightly reduce market prices in Asia,” he said.

Like Energetix, Phoenix Solar — which primarily integrates photovoltaic systems — does not have extensive dealings with the US.

Mr Alvin Yogaraj David, the firm's former vice-president, echoed Mr Inglin’s views.

“While sales of solar components to the US may go down, Chinese suppliers still have to maintain a certain sales volume," he said.

"This may result in a decrease in price of solar modules exported to Asia… Reports have also shown that China has excess inventory (of solar components) and is expected to reduce prices to clear its stock.”

REC Group — which has launched an appeal with the US Trade Representative to exempt two made-in-Singapore crystalline silicon photovaltic products from the tariffs — declined to share how much of its products are exported to the US.

According to REC's report of its performance in the fourth quarter last year, it was one of the five most popular brands of solar panel for homes in the US.

Apart from the US, REC also has “very strong relationships” with customers in Europe and Asia Pacific, said its spokesperson.

​Shipping containers being loaded onto a Chinese ship at a California port. One expert says what is of great concern is the Sino-America dispute could cast a chill on global trade.   Photo: Reuters.

Business owners from the electronics industry — which accounts for over a quarter of Singapore's manufacturing GDP — were unperturbed about potential spillover effects from a reduction in American demand for various goods, such as automobiles.

“I feel these trade tariffs have not affected Singapore heavily, or at least not yet. The impact would be larger if the US expands the products taxed,” said a member of the Association for Electronics Industry in Singapore, who declined to be named.

“The electronics and semiconductor clusters exports semi-finished goods to neighbouring countries for full assembly, so we are not significantly affected (by the tariffs).”

Still, he acknowledged that the sector may “slow down” its investments into new product lines due to the uncertainty, he said.


Some observers, nevertheless, are calling for firms here to take action to mitigate effects of a global trade slowdown, such as by exploring alternative sources or destination countries for their products or ship them before the tariffs kick in.

“Doing nothing in the hope that it will blow over would not be a prudent option,” said Mr Debets.

Singapore Business Federation (SBF) chief executive Ho Meng Kit urged the industry to “be watchful over this”.

“We should be very concerned,” he said.

“Currently, Singapore is not directly targeted as the US has a trade surplus with us. But we will suffer collateral damage because of the integration of the global value chain...Our companies should let us know if they are impacted.”

Consumers here may also have to bear higher prices of some American exports, said Associate Professor Pradumna Bickram Rana from the S Rajaratnam School of International Studies.

“For instance, faced with higher costs of raw materials like steel and aluminum, manufacturers of automobiles and computers in the US would face higher costs of production and thus have to mark-up prices when they export,” said Assoc Prof Rana, who coordinates a programme on international political economy at the school's Centre for Multilateralism Studies.

Perhaps what is of greater concern, said National University of Singapore economist Davin Chor, is the “broader chill” this episode could cast on international trade.

“The invoking of ‘national security’ concerns by the US to justify their use of tariffs (on steel and aluminum) has set a bad precedent,” said Assoc Prof Chor.

“It is much harder for countries to dispute what constitutes ‘national security’ concerns at the World Trade Organisation, which raises the spectre that this justification could be used with unchecked frequency.”

SBF's Mr Ho warned that much as people wish for the current tit-for-tat to be no more than “high-stake negotiation tactics”, they could instead be pointing to something more permanent — the start of a “dysfunctional relationship between US and China as their interests and values collide on the world stage”.

As a small country dependent on a multilateral, rules-based trading system, it is important for Singapore to work with stakeholders of like-minded countries to counter this negative development, Mr Ho urged.

“We should diversify and lock ourselves in preferential trading arrangements with other regions such as through the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the Regional Comprehensive Economic Partnership and the EU-Singapore Free Trade Agreement. We must be nimble enough to capitalise on changes in global trade flows,” he said.

Even within the US, some firms that Mr Trump had said will benefit from his trade policies are now bearing the brunt of protectionism.

Motorcycle manufacturer Harley-Davidson, for instance, announced last week that it will move some of its bike production overseas to avoid the “tremendous cost increase” due to the EU's retaliatory tariffs.

Almost two weeks ago, the EU hit back against Mr Trump's steel and aluminum tariffs with penalties on US$3.2 billion worth of American products, including bourbon, orange juice, and Harley-Davidsons.

American automaker General Motors warned on Friday that Mr Trump's proposal to launch another wave of tariffs, which would include cars and car parts, could backfire and drive vehicle prices up by thousands of dollars.

This would result in "less investment, fewer jobs and lower wages" for its employees, said the multinational firm.

Until cooler heads prevail, trade-dependent nations are in for a bumpy ride amid waves of uncertainty, said Assoc Prof Chor.

Escalation of trade wars will be a significant threat to the rules-based multilateral trading system that has over the decades provided stability and predictability for businesses to invest, said PECC's Mr Pedrosa.

“I'm worried that the recovery we are seeing could stall as investors wait on the sidelines,” he said.

“We are already seeing jittery financial markets around the world. Tit-for-tat retaliations will only increase the volatility.”

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