Trump tariffs: A third of Singapore's exports subject to new 12.5% levy

[00:00:00]About a third of Singapore's domestic exports will face a new 12.5% US tariff from Friday in a fresh blow to the country's trade-reliant economy. This comes after the United States concluded that the country does not have sufficient measures to block imports produced wholly or in part with forced labor. The Trade and Industry Ministry says it will continue to engage with the US Trade Office to explore options. More details on how the tariff will be implemented will be shared when ready.

[00:00:34]MTI says Singapore does not condone forced labor and has a strong record against such practices. Singapore is also among 16 economies under a separate US trade investigation into excess manufacturing capacity. Its findings have yet to be released. An analyst warns the higher tariffs could weaken Singapore's competitiveness and reshape supply chains.

[00:01:00]>> There are some governments that have no tariffs as a result. They were not part of the 60 countries and they then have a comparative advantage because they have zero tariffs on their products. And so it will be an interesting set of supply chain discussions within companies to think about not just what is your rate, but what is your rate compared to your competitors? And in some cases you're better off and in some cases you are worse off.

[00:01:26]>> The Singapore Business Federation says it will work closely with affected businesses to understand the impact and support them through this period. It also stressed that local firms support efforts to uphold responsible and ethical supply chains. One analyst says the immediate impact on Singapore's economy is likely to be limited with many of the country's key exports including pharmaceuticals exempt from the tariffs. He adds that Singapore's strengths lie in keeping open channels of communication with the US and diversifying partnerships and supply chains.

[00:02:04]>> Whether it's the the future of investment and trade partnership that Singapore signed with over a dozen other small and medium-sized countries last year or the digital economic framework agreement which is due to be signed in November of this year at the ASEAN Summit.

[00:02:20]Singapore's been quite you know at the forefront of these kind of deals and it's quite and it finds that it's best bet is to cast its net as wide as possible in order to you know deal with broader turbulence in the global economic system.

[00:02:39]>> And here to break down the implications of the tariffs for Singapore is Alex Capri who is a senior lecturer at the NUS School of Business. He's also a former trade specialist at the US Treasury Department. Alex, good to have you here with us.

[00:02:53]>> Pleasure.

[00:02:54]>> The new tariffs came just hours after our foreign affairs minister Vivian Balakrishnan spoke to Secretary of State Marco Rubio and made a case against tariffs. So, why wasn't the US convinced?

[00:03:06]>> Well, I think number one he wasn't speaking to President Trump who ultimately makes all the decisions. I think number two is you know Singapore was lumped into a bucket with these other 59 other countries.

[00:03:18]Um this is part of a larger effort in the United States to really look for any kind of legal structure that's going to allow them to keep that tariff wall up, right? So, I I think I think it'd be quite easy to to prove that Singapore is not a major conduit of forced labor. In fact, if you look at the public record in the United States, the Federal Register actually publishes whenever there's a shipment that's held up where where release is withheld and you can go back 50 years and there's never been a shipment from Singapore held up for forced labor. Other countries, yes, but not Singapore. So, I think this goes back to the bigger uh strategic issue that the United States is trying to preserve, you know, that that sort of the Trumpian uh protectionist um kind of uh approach.

[00:04:08]>> So, is forced labor even the real driver here? Or what is that broader strategic issue or advantage the US is hoping to have here?

[00:04:16]>> Yeah, no, it's it's absolutely looking to continue to push uh collecting revenue at the borders. The US government is looking for any form of revenue. They see duties as as a way to collect that revenue, even though many of those duties are actually assessed on American firms that are importing their goods from Singapore and elsewhere, right? As part of their value chains.

[00:04:38]But for the time being, that uh I think it's going to be the approach of the Trump administration. And remember, we've gone through a sequence of laws, right? First, you had the Emergency Powers Act, which the Supreme Court struck down. Then, we got into Section 122 with the so-called reciprocal tariffs. And in within those 150-day period, right? There was a ticking clock on that, which just expired. And now, we have the rollout of the Section uh 301, right? So, um this is just a a continuum, if you will, right? It's it's it's where the administration is looking to continue to push its protectionist uh policies.

[00:05:13]>> Yeah, so at this point, of course, uh Singapore has a free trade agreement with the US. And at the point when the tariff was set at 10%, our Ministry of Trade and Industry did not retaliate at that point. And then now that the rate is now 12.5%, what does this say about the trade relationship between both Singapore and the US?

[00:05:31]>> Well, look, I think it's it's messy, and it's it frankly from the US side, it's it's it's a bit hasty, I think, and it's and it's not really uh thought through that much, right? So, I think, you know, when you look at at at Singapore, um Singapore did not enter into any of these specific arrangements during the reciprocal tariff phase of 122 that other countries did, right?

[00:05:52]They either They either negotiated carve-outs or there were, you know, partial exemptions or they entered into bilateral very very specific discussions with the US. That didn't happen with Singapore, right? The reason they they they had the 10% right? Is because they recognized the United States recognized that there was a trade surplus.

[00:06:12]Right? The US was running a trade surplus with Singapore. Uh and therefore, you know, they went with the 10%, right? But now that we've switched to section 301, uh Singapore just gets chucked into that that wider bucket.

[00:06:24]>> Yeah, and speaking of the 10% as well, we know our neighboring economies are both Malaysia and Indonesia, they will face a lower 10% tariff. So, how does that impact Singapore, especially when it comes to decisions made uh when it comes to uh supply chain decisions, investments, even orders in the region?

[00:06:42]>> Mhm.

[00:06:42]>> Can we see that shift away from Singapore?

[00:06:44]>> Not really. I I think if you look at Singapore's value chains and you look at where, you know, really 2/3 of the exports from Singapore are semiconductors, refined petroleum, and petrochemicals, right? Uh aviation, aeronautics, so you very very high value add uh parts of the value chain. I don't see, you know, a small uh sort of margin or small spread in in, you know, a small sector of the overall uh industry leaving Singapore to go to places like Indonesia or Malaysia for that reason.

[00:07:18]>> Right. Now, you mentioned earlier the legal issues. So, the original baseline tariffs, we know that was struck down uh by the US Supreme Court. So, do you see this likely to be a short-term bargaining chip by Washington or can we expect this to be quite a long-term uh policy here?

[00:07:34]>> You know, I think there's going to be a fair amount of durability, unfortunately, to this section 301. Um as we saw, you know, with the transition from Trump 1 to the Biden administration, the Biden administration actually kept in place most of Trump 1 Section 301 tariffs on China.

[00:07:51]Um there is actually, legally, there's a there's a lapse after 4 years, basically, where um the Section uh 301 would get revisited.

[00:07:59]There would have to be a fairly strong push politically to go ahead and not continue them.

[00:08:07]Uh but, you know, when you look at Section 301, it's very, very different from emergency powers or, again, as I mentioned, the Section 122. So, Section 301 involves an investigation.

[00:08:19]It involves uh documentation of that investigation. It involves um public hearings and uh a period for public comments, a finalization period.

[00:08:29]Um that is a very, very distinct, very very different process than either, you know, Singapore looking to move under its FTA with the US or or looking to challenge. So, that's a much more established process. Although, uh there have been arguments made that that legal process that took place under Section 301 uh was very hasty, that the hearings were compressed. Uh you know, I've heard stories of, you know, um the public, the trade public calling in uh to the public hearing and the the hearing lasting a minute or 2 minutes, basically, right? So, you know, we'll see if that sort of thing gets challenged. But, for now, I think the durability of Section 301 is something that we have to really keep an eye on.

[00:09:12]>> Yeah, and very quickly, before we go, Alex, is there any chance that Singapore can convince Washington to remove the tariffs? Is there anything we can do at this point, or has that ship sailed?

[00:09:21]>> Well, I I think this is going to be a gradual process of diplomacy, and I think Singapore will do a good job of sort of moving that process along bit by pit bit by bit, rather. And I think um you know, there already are significant numbers of carve-outs. We could see more carve outs happening.

[00:09:38]Uh and at some point, um you know, depending on what happens, uh you know, particularly in the semiconductor industry here as it as, you know, semiconductors here uh gain critical mass around high-bandwidth memory, which is a really, really critical part of AI, uh you know, I think if Singapore maybe uh consolidates its position around there, it'll have a little bit more of a of a of a sort of a bargaining chip to with the United States. But that is unfortunately uh the way the world works now with Washington, right? It's bilateral negotiations and it's talk to the boss.

[00:10:13]>> Alex, thank you so much for your analysis. I've been speaking with Alex Capri, who is a senior lecturer at the NUS School of Business and former trade specialist in the US Treasury Department.