The damage from a prolonged trade war between the US and China would be profound and should have everyone worried, Singapore’s trade minister Chan Chun Sing warned.
“In the medium term, some countries benefit and some countries lose,” Chan told the media. “What is more worrying for everyone is that the entire global economy loses confidence.”
This would have “a huge impact” on the financial markets and could inhibit economic activity, added Chan.
A leading candidate to become the next prime minister, he continued: “I think it will impact everyone negatively.”
The city-state would be especially vulnerable to turbulence as a small, open economy where exports equalled 173 per cent of GDP in 2017. The US is Singapore’s fourth-largest trading partner and China is its most important.
He also said Singapore’s small size and population meant it was perfectly placed to advance innovations in energy supply. The Lion City has shifted its electricity mix from coal to oil to natural gas, which now generates about 95 per cent of Singaporean power.
The authorities have a target to produce 2 gigawatts of solar power by 2025 from about 140 megawatts last year.
There is also a plan to impose a US$3.60-per-tonne carbon tax from 2020.
Any industrial site that produces more than 25,000 tonnes of carbon a year, such as oil refineries and power stations, would be heavily affected with the revenue from the tax supposedly being used to subsidise clean-energy production and help employers improve energy efficiency.
Singapore’s status as an oil-refining and trading hub could be threatened with a carbon tax reducing profit margins by about 3 per cent from 2020, estimated energy consultancy Wood Mackenzie.
Chan said Singapore’s power stations were already operating more efficiently than their counterparts overseas.
“We are producing in a more efficient way for the rest of the world,” the minister said. “If those products are not produced in Singapore, they would have been produced somewhere else, probably with less efficient, less green, less clean methods.”
While Singapore provided a model for the rest of the world to follow, the international outlook remained gloomy, he added.
The global economic cyclical downturn could be expected in the next few years and a trade war would make it far more acute, Chan argued.
“If that coincides with what many people are expecting in terms of a global downturn because of the technicalities, then I think we will be in for a rough ride,” the trade and industry minister said.
Singapore’s purchasing managers’ index (PMI) has fallen to its lowest point in more than two years.
“The PMI will go up and down,” the minister said. “There are some cyclical factors. The concern is the longer-term structural shifts.”
As a trading hub, Singapore is particularly vulnerable to global downturns. Picture credit: Flickr