No Asian leader has a monopoly on anxiety over the US-China trade war. Yet Singapore’s Lee Hsien Loong comes close.
The trade-reliant city-state’s exports dropped 9.8% in August, the sixth straight month of sizable year-on-year declines. In the prior month, for example, overseas shipments plunged 11.4%. The electronics sector shipped 25.9% fewer goods in August, following a 24% decline in July.
Recession risks abound. In August, Prime Minister Lee’s government lowered its forecast range for gross domestic product to zero to 1% from a previous 1.5% to 2.5% projection. The central bank reckons 0.6% is the best we can expect this year.
Singapore matters because its highly-developed and open economy is often a bellwether for shifts in the global business cycle. And at the moment, it’s flashing something approaching red as Washington and Beijing trade blows.
That has Lee speaking out in ways that might rankle officials in Donald Trump’s White House. In recent speeches and interviews, including one with The Washington Post, Lee called tensions between President Trump’s America and Xi Jinping’s China “sad,” “troublesome” and “very worrying.”
The conflict, in Lee’s words, is “between two systems, almost two civilizations” that “have hardened their positions.” Ultimately, Lee argues, “this is not a struggle which can end up with one loser and one winner.”
Trump’s zero-sum worldview assumes tariffs will force President Xi into a corner and prod Beijing to yield to Washington’s demands. Lee’s government knows better. It also is on the frontlines of the biggest question confronting Asian leaders: how do you pick sides between the US and China?
From the days when Lee’s father, the late Lee Kuan Yew, ran Singapore, the government often leaned toward Washington. It viewed the US as a vital counterweight to China’s ambitions both economically and militarily. While the Philippines is pivoting toward China, Singapore has tried to straddle the whims of the strongmen leaders of the two biggest economies.
Trump risks making it impossible. Since May, Lee’s government made it clear it doesn’t want to pick sides. Governments, Lee warns, will have to begin asking: “Where is your part of the world, and who will be in your system?” Lee has been careful to avoid slamming Trump directly, lest Singapore become a daily target on the @realDonaldTrump Twitter feed. It is written between the lines in bold font, though.
Team Trump couldn’t have been happy with a May speech Lee’s foreign minister delivered in Washington. In it, Vivian Balakrishnan warned that the US should do a better job looking out for small, but geopolitically important allies.
Just getting started?
“We are still in the early stages – increased volatility, next step decreased growth – and after that, far deeper existential anxieties,” Balakrishnan said, employing words rarely spoken by diplomats. For Singapore, though, there is indeed something existential about the grenades Trump is throwing at the global trading system that served America well for decades.
There’s grave concern about what comes next. It’s not clear Trump is through with slapping tariffs on Chinese goods. First $250 billion worth, when $300 billion. Trump hints at blocking US financial companies from investing in Xi’s economy and delisting mainland companies trading on American exchanges.
Billionaire hedge fund manager Ray Dalio isn’t being paranoid when he worries Trump is just getting started. Recent threats out of the White House, Dalio told CNBC, makes him “wonder if it is an inching toward bigger moves.” As Dalio concludes: “To me, last week’s developments seemed like the most recent logical steps in this classic dangerous journey that is analogous with that which occurred in the 1935-45 period.”
Not a great historical bookend to be considering. But then Trump’s move to tax $7.5 billion worth of European exports as soon as October 18 makes it hard not to connect those dots.
It makes it hard, too, for Lee’s Singapore to know how to navigate the next six-to-12 months. The drop in inflation to three-year lows ups the odds the Monetary Authority of Singapore will be hitting the liquidity gas. The same goes for a fiscal-stimulus jolt.
Watch Singapore. It is on the frontlines of trade war fallout threatening Asia’s 2020. It complicates President Moon Jae-in’s efforts to avoid a recession in South Korea, President Joko Widodo’s push to attract more foreign investment in Indonesia and Philippines President Rodrigo Duterte’s odds of restructuring the economy.
It’s an added headwind for Prime Minister Narendra Modi as he begins his second term in India. It increases the deflationary pressures bearing down on Shinzo Abe’s Japan. And, of course, Xi’s China has added to an already crushing debt load to keep growth north of 6%.
Trump’s trade war isn’t winning the US many friends in an anxious Asia region. Nowhere is that truer than Singapore, an economic weathervane signaling big trouble ahead.