李显龙拆解中美关税困局，新加坡能否成“避险港湾”？

So this is the fundamental belief, a very deep motivation. Trump believes it, his team believes it. And these are goals which are going to be very difficult to achieve. So, we must expect him to continue to pursue this objective, and when he makes moves but the moves have not delivered results, I think the conclusion will not be to leave off, but to continue to do more moves and to take further strong measures. So we can expect to see further steps taken by the Americans over time. And that is going to have very major consequences for many countries, including Singapore. So we are here now, steps have been taken, steps yet to come, more uncertainties to come. We are not where we were before this new Administration took office, or before the 2nd of April. The world is in a new phase.

US-China

One of the biggest problems in trade and arising from this tariff package is the damage to US-China relations. America has postponed the tariffs against other countries but has not postponed against China. The tariff war between America and China has already begun. First round, America put 20% on, China responded with selected products. Then America came back again. Went back and forth with China. Now US levies on China are 145% and the Chinese – you do this to me, I do this to you – The Chinese do to US imports, US sales to China, 125%. So, it has reached the level where the number does not matter anymore. It can be 100%, it can be 200%, it can be 300%. How much business is going to be done? Probably, almost none, because it is impossible.

And it does not stop with such tariff items. It goes beyond tariffs. For example, China has restricted rare earth exports. What are rare earths? They are raw materials which you need to make all kinds of electronics equipment, and China is a major exporter. If you do not get it from China, it is very difficult to get it from other places. So China says, “You do this to me, I will respond. I will restrict rare earth exports. And if you do not want me to sell you goods, okay. I will not buy your goods is one thing, but I will also restrict imports of Hollywood films.” Films are not goods, because films you just stream over, it is services. But never mind, I will restrict that. I will not watch Disney, I will watch Ne Zha 2.

So effectively, the bilateral trade is going to get killed. And why? Because the businesses just cannot do it. If the tariff is five percent, 10%, maybe even 15%, okay I am selling it to you, let’s cham siong. You take 5%, I take 10%, we squeeze our belts a little bit – my profit a bit less, your cost a bit higher, okay, let us try to stay calm and carry on. But when it is 150%, 200%, and you do not know what is going to happen tomorrow or day after, then you cannot stay calm and carry on. You must stay calm, and then you may have to decide to go into a different business or to go out of business. And that means entire businesses and trade flows are going to stop.

And it would not end with trade, because if I am quarrelling with you on such a serious matter, it is very difficult for me to cooperate with you on other equally serious things. So, for example, the Americans want China to cooperate on restricting fentanyl, because the materials to make fentanyl come from China; somehow they go to Mexico and other places, they are made into fentanyl, then smuggled into the US. And America wants China to stop making the precursor chemicals. But China says, well, why should I try very hard? So this is going to escalate, and there will be far reaching consequences for US-China relations.

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