Friday, January 20, 2017
This is What Singapore Can Expect Now That Trump is President
Now that Donald Trump is the U.S. president, the world will now see if he was all rice and no chicken on the campaign trail. If he does follow through on everything he promised to do, Singapore will be one of the countries impacted the most.
This is because Singapore’s economy relies on trade like few other nations on earth. This is shown by the total trade as a percentage of GDP number – the higher the number, the more open a country is to international trade… and the more important trade is to that country’s economy.
Trade through Singapore accounted for 326% of the country’s GDP in 2015 – the third-highest ratio in the world, after Hong Kong and Luxembourg. In fact, that figure has been at 300% or higher for Singapore since 1976, according to data from the World Bank (except for 1986 when it was 295%).
With that in mind, here are three ways Singapore could be “trumped” by the new American president.
- Less attention from the U.S.
The U.S. is Singapore’s fourth-largest trading partner as measured by total trade (imports plus exports). Trade between the two countries is dominated by the exchange of different kinds of machinery and commercial services. The chances are good that as President Trump focuses more on domestic matters, and on alienating China, the U.S. government will pay less attention to the rest of Asia. The days of President Obama’s so-called “Asia pivot” – entailing a renewed and refreshed focus on the continent – are long gone.
- More trade with Asia
In October 2015, the U.S. government signed the Trans-Pacific Partnership (TPP) along with 11 other nations, including Singapore, Australia, Malaysia and Japan. The TPP’s goal was to make it easier for the participating countries to trade with each other by removing trade tariffs and lowering importing and exporting costs between members.
But Donald Trump said the TPP was “a terrible deal” for the U.S. Then, shortly after winning the U.S. presidential election, Trump announced that one of the first things he will do as president is withdraw from the TPP. Without U.S. involvement, the deal is dead.
That means easier access to the giant U.S. consumer market for countries like Singapore will not get any easier. And if Trump starts imposing higher tariffs on goods from Asia, it will slow down trade even further.
But soon after Trump promised to withdraw from the TPP, Chinese president Xi Jinping said that “China will not shut the door to the outside world but will open it even wider.” In other words, China is set to fill the void left by the U.S. easing up on globalisation. And it already has deals in place – all of which involve Singapore – that could nearly match the TPP in size.
For instance, China is a leading member of the Regional Comprehensive Economic Partnership (RCEP). This is a trade agreement between the 10 ASEAN countries (which includes Singapore) and the six countries with which ASEAN has existing FTAs – this includes China, Australia, Japan and New Zealand.
This deal is still being negotiated. If it happens, the RCEP will be a mega trade deal. The 16 countries involved account for more than a quarter of global trade and a quarter of global GDP. Plus, with China, India and Indonesia involved, it would cover almost half of the world’s population.
China is also developing the One-Belt, One-Road initiative, which is an effort to create a modern-day Silk Road. The proposed infrastructure will more tightly connect the continent of Asia to Europe and parts of Africa. One estimate suggests that this will end up costing about US$8 trillion. It will allow China to trade more easily with the majority of the world’s population.
Singapore hopes to play a key role in this initiative. Not only is it a key part of the Maritime Silk Road portion of the plan, but Singapore also hopes China will use it as a platform to reach out to Southeast Asia and the rest of the world.
So even with the potential of less trade with the U.S., Singapore could still benefit from better trade relationships with its Asian neighbours.
- More uncertainty
It used to be that in developed markets (like the U.S., Europe, and Japan), things were comfortable and easy, and there weren’t many surprises. Politics didn’t matter much to share prices.
And then there were crazy emerging markets (like most of Latin America, Africa, and much of Asia), the wild west of investing, where anything could happen. Bad politics could erase years of market gains in a matter of moments.
When I worked for a political risk consulting company a few years ago, we would talk about how an emerging market was one where politics mattered to markets. That meant that personalities (that is, the people in power) were bigger than, and more important than, the institutions those people headed up. Who’s president, what the parliament is doing, what kind of people are making policy – all of that could be the difference between making or breaking a market.
And this is still true in emerging markets, like Brazil and South Africa and Malaysia and Russia. Who the president is and what crazy things he’s doing can completely change the business and investment environment.
The big change is that developed markets are looking a lot more like emerging markets when it comes to politics. From Germany to Japan to the U.S., politics in many developed markets are a lot more polarised than they’ve ever been before. Different sides don’t want to talk – they only want to yell. And after a while, a strong personality harnesses one part of this polarisation. That’s what can threaten institutions. And that’s a big risk.
This is what we see happening with the popularity of Donald Trump. Even in a developed market like the U.S., personalities are becoming bigger than the institutions they inhabit (like the presidency). If personalities can change those institutions for the better, it’s a good thing. But it’s a big risk – as the history of many countries in emerging markets has shown.
This type of uncertainty in the world’s most developed market, the U.S., could translate into more volatile markets everywhere. And that includes Singapore.
So with Trump now in the White House, Singaporeans can expect to see more market volatility, less interest from the U.S. and a bump in trade with the rest of Asia.