SINGAPORE: Temporary tariff cuts by the United States and China may give the Singapore economy, which is highly reliant on trade, a better chance of avoiding a recession this year, said analysts.
In the thick of tit-for-tat tariff hikes between the US and China last month, economists warned that Singapore could slip into a technical recession - a term referring to two consecutive quarters of negative growth.
Singapore's economy contracted 0.8 per cent on-quarter in the first three months of the year, and the Ministry of Trade and Industry has cut the nation's 2025 growth forecast to 0 per cent to 2 per cent.
But as the world's two largest economies called a 90-day truce on the trade war on Monday (May 12), analysts expressed hope that a boost in US-China market demand will in turn improve Singapore’s exports.
However, they cautioned that remaining uncertainty over tariffs globally could still worsen the outlook.
HSBC’s chief Asia economist Frederic Neumann told CNA the tariff cuts are “good news for Singapore's economy”, adding that trade disruptions would be less than if the higher tariffs had remained.
U.S. Secretary of the Treasury Scott Bessent, (left), U.S. Trade Representative Jamieson Greer, (second left), Chinese ambassador to the World Trade Organization Li Chenggang, (second right), and Chinese Vice Premier He Lifeng, (right), attend the second day of a bilateral meeting between the United States and China, in Geneva, Switzerland, May 10, 2025. (Photo: Martial Trezzini/Keystone via AP)
Trade negotiators from Washington and Beijing agreed to slash reciprocal tariffs by 115 per cent both ways for three months, following talks in Geneva over the past weekend.
US duties on imports from China dropped to 30 per cent from 145 per cent, while Chinese duties on US imports were reduced to 10 per cent from 125 per cent.
Mr Neumann noted that Singapore’s trade-oriented economy is highly driven by the logistics sector, which would benefit from any lessening of upheavals to world trade.
The logistics sector makes up about 7.4 per cent of Singapore’s gross domestic product, according to official data.
Mr Neumann added that beyond logistics, other sectors of the Singapore economy which are similarly exposed to trade, such as legal or financial services, would also benefit.
Mr Jeff Ng, head of Asia macro strategy at Sumitomo Mitsui Banking Corporation (SMBC), also pointed to Singapore’s manufacturing and trade-related services sectors.
However, he said these sectors might still underperform due to uncertainty caused by the sudden changes in tariff policies.
“If the tariff rates are going to be adjusted much higher one month and then going back to lower rates the following month, or having more flip-flops along the way, it may deter manufacturers or traders from conducting more business,” Mr Ng added.
The SMBC analyst said this uncertainty may also cause sectors that could benefit from the tariff pause to lose out.
Mr Neumann added that while there is much relief now that US tariffs on China have been lowered, they are still “significant”.
“We're looking at average tariff levels that the US imposes on China of around 40 per cent at the moment, which is still quite high, and that will obviously reverberate across the global economy,” he said.
The reduced US tariff on Chinese goods stands at 30 per cent, which does not include the universal 10 per cent tariff levied by the US on imports, making the effective tariff rate on China 40 per cent.
A general view shows the skyline of the central business district with the Chinatown and Maxwell areas in the foreground in Singapore on Apr 29, 2024. (Photo: AFP/Roslan Rahman)
This 10 per cent duty is still in place as a “baseline”, according to the Trump administration.
The HSBC economist said it is likely that investment activities will remain restrained due to the “overhanging” uncertainty which US trade policy changes have “injected into the global economy”.
SMBC’s Mr Ng said if the US and China markets experience some moderate demand from this temporary walkback in reciprocal tariffs, it may help boost modest growth prospects for Singapore’s exports and its overall growth.
He noted that tariff negotiations are still ongoing between other countries and the US.
If such talks lead to more trade being diverted away from Singapore, Mr Ng said this may then dampen Singapore's economic prospects.
Mr Ng said the temporary cuts in reciprocal tariffs by the US and China may help to support both nations’ currencies, leading to a slight recovery against the Singapore dollar.
He said that the Singapore dollar is still expected to perform quite well against a basket of currencies of Singapore’s main trading partners.
“I still think there are some risks or disruptions to global trade,” said Mr Neumann, adding that restrained investment activity may still lead to Singapore facing headwinds in sectors exposed to external trade flows.
He added that the financial services sector is doing very well, with domestic consumption still a major growth driver for Singapore’s economy.
As other countries continue to face negotiations with the US, Mr Neumann said it remains important for Singapore to focus on more domestic-oriented sectors, which he thinks are more resilient amid this tariff uncertainty.
For now, analysts are sticking to their full-year forecasts of about 2 per cent growth for Singapore's economy.
Continue reading...
In the thick of tit-for-tat tariff hikes between the US and China last month, economists warned that Singapore could slip into a technical recession - a term referring to two consecutive quarters of negative growth.
Singapore's economy contracted 0.8 per cent on-quarter in the first three months of the year, and the Ministry of Trade and Industry has cut the nation's 2025 growth forecast to 0 per cent to 2 per cent.
But as the world's two largest economies called a 90-day truce on the trade war on Monday (May 12), analysts expressed hope that a boost in US-China market demand will in turn improve Singapore’s exports.
However, they cautioned that remaining uncertainty over tariffs globally could still worsen the outlook.
LESS DISRUPTION SMOOTHENS TRADE
HSBC’s chief Asia economist Frederic Neumann told CNA the tariff cuts are “good news for Singapore's economy”, adding that trade disruptions would be less than if the higher tariffs had remained.
U.S. Secretary of the Treasury Scott Bessent, (left), U.S. Trade Representative Jamieson Greer, (second left), Chinese ambassador to the World Trade Organization Li Chenggang, (second right), and Chinese Vice Premier He Lifeng, (right), attend the second day of a bilateral meeting between the United States and China, in Geneva, Switzerland, May 10, 2025. (Photo: Martial Trezzini/Keystone via AP)
Trade negotiators from Washington and Beijing agreed to slash reciprocal tariffs by 115 per cent both ways for three months, following talks in Geneva over the past weekend.
US duties on imports from China dropped to 30 per cent from 145 per cent, while Chinese duties on US imports were reduced to 10 per cent from 125 per cent.
Mr Neumann noted that Singapore’s trade-oriented economy is highly driven by the logistics sector, which would benefit from any lessening of upheavals to world trade.
The logistics sector makes up about 7.4 per cent of Singapore’s gross domestic product, according to official data.
Mr Neumann added that beyond logistics, other sectors of the Singapore economy which are similarly exposed to trade, such as legal or financial services, would also benefit.
Mr Jeff Ng, head of Asia macro strategy at Sumitomo Mitsui Banking Corporation (SMBC), also pointed to Singapore’s manufacturing and trade-related services sectors.
However, he said these sectors might still underperform due to uncertainty caused by the sudden changes in tariff policies.
“If the tariff rates are going to be adjusted much higher one month and then going back to lower rates the following month, or having more flip-flops along the way, it may deter manufacturers or traders from conducting more business,” Mr Ng added.
The SMBC analyst said this uncertainty may also cause sectors that could benefit from the tariff pause to lose out.
LOW TARIFFS DOES NOT MEAN NO TARIFFS
Mr Neumann added that while there is much relief now that US tariffs on China have been lowered, they are still “significant”.
“We're looking at average tariff levels that the US imposes on China of around 40 per cent at the moment, which is still quite high, and that will obviously reverberate across the global economy,” he said.
The reduced US tariff on Chinese goods stands at 30 per cent, which does not include the universal 10 per cent tariff levied by the US on imports, making the effective tariff rate on China 40 per cent.
A general view shows the skyline of the central business district with the Chinatown and Maxwell areas in the foreground in Singapore on Apr 29, 2024. (Photo: AFP/Roslan Rahman)
This 10 per cent duty is still in place as a “baseline”, according to the Trump administration.
The HSBC economist said it is likely that investment activities will remain restrained due to the “overhanging” uncertainty which US trade policy changes have “injected into the global economy”.
SMBC’s Mr Ng said if the US and China markets experience some moderate demand from this temporary walkback in reciprocal tariffs, it may help boost modest growth prospects for Singapore’s exports and its overall growth.
He noted that tariff negotiations are still ongoing between other countries and the US.
If such talks lead to more trade being diverted away from Singapore, Mr Ng said this may then dampen Singapore's economic prospects.
CAUTIOUSLY HOPEFUL ON EXTERNAL OUTLOOK
Mr Ng said the temporary cuts in reciprocal tariffs by the US and China may help to support both nations’ currencies, leading to a slight recovery against the Singapore dollar.
He said that the Singapore dollar is still expected to perform quite well against a basket of currencies of Singapore’s main trading partners.
“I still think there are some risks or disruptions to global trade,” said Mr Neumann, adding that restrained investment activity may still lead to Singapore facing headwinds in sectors exposed to external trade flows.
He added that the financial services sector is doing very well, with domestic consumption still a major growth driver for Singapore’s economy.
As other countries continue to face negotiations with the US, Mr Neumann said it remains important for Singapore to focus on more domestic-oriented sectors, which he thinks are more resilient amid this tariff uncertainty.
For now, analysts are sticking to their full-year forecasts of about 2 per cent growth for Singapore's economy.
Related:
Continue reading...