Implications of USA – China Trade war on Singapore

Editing and summarizing the following article because its closer to home:

With the world ‘moving a little closer’ to a trade war, what’s the impact on Singapore?

SG – Export heavy.

SINGAPORE: As trade friction between the United States and China heats up with mutually-threatened tariffs kicking in on Friday (Jul 6), the world seems to be “moving a little closer” to an all-out trade war – a scenario that will weigh on Singapore’s economy, economists said.
While united in the view that a global trade war, if it happens, will have an impact on Singapore’s gross domestic product (GDP), experts differed on the extent of the damage.
For instance, estimates of downside risk to growth this year ranged from 0.2 percentage points to 0.8 percentage points.
The 25 per cent tariff levied by the US on US$34 billion (S$46 billion) worth of Chinese products across 818 categories is set to take effect just after Friday midday in China. Beijing has said that it will respond the instant these measures kick in with tariffs on the same value of US goods, including vehicles and agricultural products.
Economists are particularly worried about the potential retaliation to the latter, which could cause the ongoing trade spat to evolve into a full-blown trade war.

“(The 10 per cent tariffs on US$200 billion of Chinese goods) marks a significant intensification of hostilities and a more substantial macroeconomic impact, with total targeted Chinese trade now 10 per cent of Chinese exports.”

If all the tariff threats materialise, global trade flows and financial markets will be hit.

“The increase in tariffs will have an impact on global trade. Another is the reaction from financial markets, which could fall given the flight to safe haven. We can expect the US dollar to appreciate and correspondingly, some of the Asian currencies to depreciate,” she explained.


Exports will be hit and that will affect export-dependent sectors, like transportation and storage, wholesale and retail. Singapore being an important financial hub will also be hit if financial markets get adversely impacted. Private investments may slow as an uncertain outlook and weaker external demand will have implications on business decisions.”
As a result of that “bad case scenario”, Ms Fenner said Singapore could see a lower growth figure of 2.9 per cent, instead of 3.1 per cent, this year. For 2019, the impact would be more severe with the economy slowing to 1.7 per cent – a reduction of 0.7 percentage points from Ms Fenner’s initial estimate.

In total, that could mean a loss of S$3.4 billion in GDP in the event of an all-out trade war.

In an analysis by DBS chief economist Taimur Baig, a full-blown trade war – defined to be a scenario with 15 to 25 per cent tariffs on all products traded between China and the US – could shave 0.25 percentage points off the GDP of both economies this year, and 0.5 percentage points in the following year.

Others are less bearish with regards to the situation:

“In a scenario where our worst trade war fears materialize, and manufacturing growth flatlines or even contracts in the second half with potential spillovers into sentiment-sensitive services sectors, the potential hit to full-year GDP growth could be up to 0.3 percentage points.”

For his research, Mr Botham (Schroders) utilised trade in value added (TiVA) data sourced from the Organisation for Economic Cooperation and Development (OECD). Data up to 2011 were used to obtain a rough estimate of the value added in exports for 2017.

“TiVA data is used to analyse the effects of tariffs on trade between US and China because it tells you the exposure of economies to those trade flows via supply chain effects,” he explained in an emailed response to Channel NewsAsia.

“For example, only 65 per cent of the value of Chinese exports to the US comes from China itself, with the rest added by firms in other countries. These firms will suffer if the US applies tariffs to Chinese goods, and TiVA data helps to quantify that damage.”

For Singapore, the estimated value-added in Chinese exports to the US is at 1.33 per cent of its GDP, while that of US exports to China stands at 0.08 per cent. According to Mr Botham, that makes Singapore the fourth most vulnerable country to a China-US trade spat given its position in the global value chain.



written by: Tang See Kit


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