Second, the tariffs – whether they are equal or unequal – and in this case, they will become unequal – will choke off trade, will raise costs, and will dampen growth. In the 2000s, at the beginning of the millennium, the US tariffs were on average at about one percent. So basically, if you can sell to the US, your goods can enter the US almost duty-free. There are some exceptions like trucks – they charge a lot. Other things like sugar, where they are restricted, they are sensitive – they have farmers to protect – or ethanol. But across the board, one percent. They were the anchor of the global trading system. Now, already they are at about 10%, at a level which has not been there for 80 years. It is very high. It is higher than any other developed country.
And if in 90 days’ time, the rest of the reciprocal tariffs come in and they go to 30, 40, or sometimes nearly 50%, then the US tariffs will be even higher than they were before the war, during the Great Depression, when the US pushed the tariffs right up. And that worsened the Depression for the US and for the world. Furthermore, this is not the end of the story, because tariffs in the bundle so far have not counted two products – pharmaceuticals and semiconductors. Pharmaceuticals and semiconductors may have been feeling happy for a short while, but America has made it very clear it is coming soon, akan datang. And that will potentially hit Singapore quite hard, because pharmaceuticals and semiconductors are a significant part of our economy. So that is from the immediate impact of the American tariffs.
But when other countries retaliate, then you must expect back and forth, tit-for-tat. It has happened with China. It will happen with other countries. Then it will cause a downward spiral and the impact will be even worse. Canada has already retaliated. The EU has also retaliated, quite carefully, because they are a bit fearful. They have done Harley-Davidson, because that is one of the iconic American products. But they have not put high tariffs on whiskey, bourbon. Why? Because the Americans say, “You do bourbon, I am going to hit French wine, German wine, champagne”. So both sides have held off for now – they can drink to that. But that is a small item. As the quarrel goes on, it will grow bigger, and the impact will be worse. And the Chinese side has gone right to the end. And with the other countries you can head in that direction too. And that will do a lot of harm.
Fourth, when you have tariffs and we say, "Well that is going to dampen growth and things are going to slow down and there will be fewer upsides", it is not just dampening growth. It is going to be very disruptive. If dampened growth means volume goes down, profits go down, maybe bonuses go down; well, I tighten my belt, I still got my job, both of us. Maybe over time, I can go and find another job. But if the supply chains are disrupted, if you get hit by 100% tariffs – companies in China are making Christmas trees for America for Christmas; 150% tariff – Christmas is not going to come. If you have got such a tariff on pharmaceuticals and semiconductors in Singapore, are we going to have Christmas or not? What it means is that industries can be disrupted. Businesses can be totally turned upside down. You may have the whole business model suddenly disappear and not just not hiring more people, but you may find yourself all of a sudden with a lot of surplus workers. How to look after them? And that can very quickly lead to recession – recession in the US itself, and impact elsewhere too. This is going to be a burden on businesses and consumers, on the global economy.
Fifth, with all these new tariffs – this is something which is going to last a very long time. It is not going to go away soon, because once you put in a tariff, once you protect your market, it is very difficult to take it away. People get used to it. Some companies may invest. You put in a tariff, you say, "Come invest in America". So I invest in America. It is really not competitive. You want to build Christmas trees in the US – it is very expensive, where to find workers? But after you have got the tariff and after the Christmas tree factory has come up, then you want to undo it. The factory says, “I am going to die, please help me". So you cannot undo it anymore. It is there. It is a reality. And furthermore, if you undo it, the party in opposition will say "But you see the Chinese have their tariffs still on, why am I disarming myself?” You have to negotiate with them – a further long process.
To go from where the Americans were, before the war, when they had high tariffs, to where they were by 2000 when the tariffs were one percent, nearly zero, that was a nearly 80-year process, gradually bringing things down. So now, if the tariffs go up, they stay up for a while. If you want to bring them back down, I think that is going to be a long process. It is not going to disappear. So that is going to be a long problem.
Impact on us, Singapore?
What is the impact on us? Immediately, the impact on us is – growth. This year, we were hoping for one to three percent growth. That was what we announced around Budget time. But with all this uncertainty in the world, MTI has revised the forecast. They have just put up the new forecast today; they put it down to zero to two percent. Do you know for sure? No. Could it be zero? Possible. Can it be negative? Will we have a recession this year? When we look at the numbers, we do not think so, but it could happen. And it could happen because, actually, you really do not know. You are not looking at whether consumers are ordering, whether demand is good, whether your product is improving, whether everyone is prospering. If I take an optimistic view – let's invest first. I think if I am fast, I will get something. What you do not know is what new policies are going to come. What are other countries going to do? Then, how will America re-retaliate? And you ask me to guess? It is impossible. So the uncertainty is very high, and is a problem, a problem in the short term. And as I explained earlier, in the medium to long term. So we must expect lower growth this year, a recession somewhere down the road, maybe not this year, but quite possibly at some point. And over the medium term, 5, 10 years, this is going to be a less friendly world that we are in.
So the difference between this time and previous crises is: previously you come out, you can come out into a world which is working and we fit in, we work again. This time, we are okay, but the world is not going to be okay, and we have to do our best to make sure that we look after ourselves in this much less hospitable world.
That is just on the economic side. On the geopolitical side, I do not want to go and talk a lot about it tonight, but you know about US-China. We know about the problems which are going to be worsened because of the trade war. So we must expect more US-China tensions, and therefore a less tranquil, less stable region. There will be more demands on us to work very hard, to be friends with both, and to find our own way forward without getting into trouble.
I think for Singapore, it means some very serious implications. This time is different, and we have to understand that, even as we think what we can do about it.
So, what can we do about it? I think there are two areas where you have to think about – one internationally and the other one domestically.
Singapore’s response – International
Internationally – I think we have to continue to support free trade, multilateralism, the WTO. To try to keep the system going and not have it collapse, even though the US is abandoning the rules. The US is the biggest economy. They come out, it has a significant impact on the rest of the world. But the rest of the world is still there, and if we can work together, I think we have a fair shot at keeping the system up.
I give you an example of how this can be done. You will have heard of the TPP – the Trans-Pacific Partnership. You do not need to know the details, but basically, 12 countries got together to negotiate a Free Trade Agreement. Singapore had some part to play, to get this process started right at the beginning. One of those countries was the US. In fact, President Obama was very active in pushing the negotiations and trying to get a deal on the TPP, and he succeeded. But the last step was to get the deal ratified in Congress, then America is in. He could not do that. He left it to his successor. He hoped that it would be Hillary. Hillary said, “No, I repudiate this”, although she was also involved. And anyway, Hillary lost, and Mr Trump won. And Mr Trump had said, “If I come in, I'm going to kill it on Day One”. When he was sworn in on the 20th of January, 2017, on day one, he killed the TPP. But fortunately, the TPP did not die, because there were still 11 members, other than the US. Japan was still there, and Mr Shinzo Abe was Prime Minister of Japan. He exercised leadership, he rallied the other countries, he renegotiated the deal so as to exclude all the parts where we had accommodated American interests, and saved the rest of the deal. And he got the other 11 countries together, and we all signed, and enough ratified.
