Trump's Tariff Tidal Wave: Ripple Effects on Singapore's Economy and Stock Market

On November 25th, Eastern Time, the President-elect of the United States, Donald Trump, announced that he would impose a 25% tariff on all products entering the United States from Mexico and Canada. This tariff will remain in effect until drug trafficking and all illegal immigration cease to enter the United States. In addition, Trump also declared that he would impose an additional 10% tariff on Chinese goods, which he would sign an executive order on his first day in office. This tariff threat highlights Trump's intention to use trade tariffs to implement his policy agenda.

2018 was a turbulent year for global stock markets, and the Singapore stock market was no exception. Since March 2018, President Trump began to implement a series of punitive tariff measures against China in response to alleged "unfair trade practices." In response, the Chinese government also took corresponding countermeasures, leading both sides into a protracted trade dispute. As trade war tensions escalated, the Singapore stock market, like other Asian markets, experienced severe fluctuations and significant declines.

1. Short-term fluctuations: Whenever there was news about the trade war, such as Trump announcing new tariff plans or China releasing a list of countermeasures, the Singapore stock market would often experience short but sharp adjustments. This reflected investors' concerns about uncertainty.

2. Long-term weakness: From an annual perspective, the escalation of trade tensions between the United States and China led to increased global market uncertainty. The slowdown in global economic growth, especially the slowdown in China's economic growth, affected Singapore's position as an important trade center. Singapore's economic growth data fell below expectations, also affecting the stock market performance. Therefore, the Singapore stock market overall showed a relatively weak trend.

The direct impact of the tariffs imposed on Canada, Mexico, and China may be relatively small for Singapore, as only China is one of Singapore's main trading partners among the three affected markets. However, the indirect impact may be greater, reflected in:

1.Trade flows and supply chain adjustments
Firstly, Singapore is a country highly dependent on international trade, and its economy is closely linked to the global supply chain. Tariffs imposed between countries will impact the global supply chain, with local Singaporean manufacturers supplying intermediate goods to China, which are processed into finished products and exported from China to the United States. As China's exports to the United States are hindered, the demand for these intermediate goods may also decrease.

However, indirect supply chain impacts may also have positive effects. Macquarie Capital released a research report pointing out that during Trump's first term, ASEAN benefited from overall trade with the United States, but the global economic slowdown triggered by the Sino-American trade war from 2018 to 2019 also put pressure on the ASEAN region. During Trump 2.0, ASEAN, as a geopolitically neutral region, is expected to attract trade flows and investment shifts under the backdrop of geopolitical neutrality, but may experience fluctuations affected by the strengthening of the US dollar in the first half of the year.

The report expects that ASEAN's foreign direct investment (FDI) will grow by about 5% by 2025, with data centers, electric vehicles, renewable energy, and fast-moving consumer goods (FMCG) becoming the focus of investment, as these sectors have both domestic market demand and export potential. The local high-tech sector is expected to benefit from this, and more foreign investment may flow into Singapore.

2. Changes in market sentiment
Secondly, changes in market sentiment are also a factor that cannot be ignored. Trade tensions on a global scale often trigger investor concerns, leading to market sentiment fluctuations. If Trump announces the imposition of additional tariffs on Chinese goods, it may cause market risk aversion, leading to capital flowing from riskier assets (such as stocks) to safer assets (such as bonds or gold), which may cause the Singapore stock market to decline.

3. Exchange rate fluctuations
Additionally, exchange rate fluctuations are a key point. The fundamentals of the US economy in this round are not bad. Whether the Federal Reserve's interest rate cuts help economic recovery or Trump's incremental stimulus policies, they may support the US dollar. A strong US dollar usually leads to the relative depreciation of Asian currencies, which means profit reduction for Singaporean companies with substantial overseas income.

At the same time, Singapore has many multinational companies listed locally, and their businesses are often spread across the globe, including China. If these companies' operations in China are affected by tariff policies, their stock prices may also be affected. For example, Yangzijiang Shipbuilding Holdings Ltd, NIO, COSCO Corporation (Singapore) Ltd.

Furthermore, the Federal Reserve's response to the state of the US economy also affects the nerves of the global capital market. If trade tensions escalate and lead to increased inflationary pressures, the Federal Reserve may pause interest rate cuts to curb inflation. This move will further affect the global capital flow pattern and impact the Singapore stock market.