'A matter of face', US-China trade tensions now harder to resolve: PM Lee

SINGAPORE — What began as trade tensions between China and the United States has also become "a matter of face" , making it harder to resolve, said Prime Minister Lee Hsien Loong on Tuesday (May 1), as he reiterated concerns over the global trade situation.

Speaking at the annual May Day Rally, Mr Lee noted how the tit-for-tat unilateral moves by the two economic giants have escalated.

It started with the Trump Administration making trade with China a "top issue", slapping tariffs on Chinese products worth some US$50 billion.

"The Chinese, politely but firmly, said they do not want a fight, but if there is a fight, they will accompany the US every step of the way, to the bitter end," said Mr Lee.

China then matched the restrictions on US$50 billion worth of products from the US.

But matters did not end there, said Mr Lee, noting that the US "immediately escalated" the situation by imposing restrictions on another US$100 billion worth of Chinese goods.

These moves are "very worrying" for Singapore, said Mr Lee, noting that the Republic will suffer "collateral damage" even without being part of the fight.

For instance, American duties on solar panels, steel and aluminium would apply to Singapore's exports too, while Chinese tariffs on synthetic rubber products originating in the US, European Union and Singapore, would affect businesses here as well.

The unilateral actions also undermine the open, rule-based multilateral trading system that the World Trade Organisation is premised on, and may encourage other players to follow suit, Mr Lee warned.

"All countries, big and small, are expected to play by the rules... Now, some big players are breaking the rules, doing what they want," he said.

"Because they are big, they can do it... But it will encourage everyone else also not to have respect for the rules. And when they come under pressure, they are more likely to do the same."

This could result in a "more uncertain, more risky" international trading system, which in turn impedes trade and investments.

"In a world where the rules are not followed, all countries will suffer, but small countries like us will be worst hit," he said.

Trade tensions between the two superpowers can also lead to a "more serious quarrel" which affects the stability and security of the world, he added.

The ongoing fight will make it harder for both sides to co-operate on other issues.

"It will also generate more rivalry and suspicion between the two. Why are you doing this? Can I trust you? What precautions must I take... There will be more frictions and possibly conflict," he said.

Countries that wish to maintain healthy relations with both parties will also be "put under pressure (to take sides)", said Mr Lee.

"Are you my friend, or his friend? We will be asked by both sides. So what is at stake is not just prosperity, but war and peace," he said.

The tensions in the global environment cloud the long-term outlook for Singapore's economic growth, which is on track to exceed 2.5 per cent this year.

"But in the longer term, if these trends continue, it will be very bad for the world, very bad for Singapore," said Mr Lee.

As a small country, the Republic has no part in controlling these events, but we must make our voice heard "on issues which matter to us", Mr Lee said

He added that he had reiterated Singapore's support for free trade at a recent forum in China and a commentary for the Washington Post.

"Hopefully, if what we say makes sense, if they listen, and we can have some influence on what happens... What I say in China, I must be prepared to say in America (and vice versa)... This way, we maintain our credibility with both sides and retain the trust of both sides," he said.