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SINGAPORE: As trade friction between the United States and China heats up with mutually-threatened tariffs kicking in on Friday (Jul 6), the world seems to be "moving a little closer" to an all-out trade war This will weigh on Singapore's economy, economists said.
For instance, in the case of a global trade war, if it happens, will have an impact on the subject of the United Kingdom.
For instance,
The 25 per cent tariff levied by the US on US $ 34 trillion (S $ 46 trillion) worth of Chinese products across 818 categories is set to take effect just after Friday midday in China. Beijing has said that it will respond to the situation of the United States of America, including vehicles and agricultural products.
The Trump Administration is also preparing for a second tranche of Chinese goods valued at US $ 16 billion.
US tariffs on solar panels, washing machines, steel and aluminum imports from all major trading partners, plus additional threats of extra 10 per cent duties on an additional US $ 200 billion worth of Chinese products.
Economists are particularly worried about the potential retaliation to the latter, which may cause the ongoing trade to evolve into a full-blown trade war.
"We believe China is likely to retaliate, having warned of strong countermeasures," said Schroders' emerging markets economist Craig Botham.
"(The 10 per cent tariffs on US $ 200 trillion of Chinese goods) marks a significant intensification of hostilities and a more substantial macroeconomic impact, with total targets Chinese trade now 10 per cent of Chinese exports."
Echoing that , Oxford Economics' lead Asia economist Sian Fenner said: "There is little doubt that with the US threatening extra tariffs on China, its NAFTA allies, the European Union (EU) and others, which will prompt retaliations, we are moving a little closer to a trade war. "
If all the tariff threats materialized, global trade flows and financial markets will be hit.
"The increase in tariffs will have an impact on global trade. Another is the reaction of financial markets, which could have been given to safe haven. We can expect the US dollar to appreciate and correspondingly, some of the Asian currencies to depreciate, "she explained.
HOW BAD COULD IT BE FOR SINGAPORE?
Under that backdrop, trade-dependent Singapore will feel some even if it is not a direct target of the tariffs, said Ms Fenner.
"Exports will be affected by export-dependent sectors, like transportation and storage, wholesale and retail. Singapore being an important financial hub will also be hit if financial markets get adversely impacted. Private investment can be slowed down as a result of this situation. "
As a result of that" bad case scenario ", Ms Fenner said Singapore could see a lower growth figure of 2.9 per cent, instead. of 3.1 per cent, this year. For 2019, the impact would be more severe with the economy slowing to 1.7 per cent – a reduction of 0.7 percentage points from Ms Fenner's initial estimate.
In total, that could mean a loss of S $ 3.4 billion in GDP in the event of an all-out trade war.
In an analysis by DBS chief economist Taimur Baig, a full-blown trade war – 15% to 25% of the total exchange rate – China and the US – could shave 0.25 percentage points off the GDP of these economies, and 0.5 percentage points in the following year.
"This would be a major global chain reaction," wrote Mr Baig in a Jul 3 note. "
Singapore would be the worst hit among its neighbors, with a downside," he said, "there will be no respite whatsoever for Malaysia, Singapore, South Korea, and Taiwan in this tail risk scenario." 0.8 percentage points in 2018 and 1.5 percentage points next year, according to DBS.
OCBC Bank's head of treasury research and strategy Selena Ling is less bearish.
"While our budget for Singapore's 2018 full-year GDP and manufacturing growth remains at 3.0 per cent and 4.4 per cent year-on-year, it could be downside risk from here," she said.
"In a scenario where our worst trade war fears materialize, and manufacturing growth flatlines or even contracts in the second half with potential spillovers into sentiment-sensitive services sectors, the potential hit to full-year GDP growth could be up to 0.3 percentage points. "
Schroders predicted that Singapore is among the top 10 countries most impacted by the US-China trade conflict via supply chains.
For his research, Mr Botham used trade in value added (TiVA) data sourced from the Organization for Economic Cooperation and Development (OECD). Data for 2011 were used to obtain a rough estimate of the value added in 2017.
"TiVA data is used to analyze the effects of tariffs on trade between US and China trade flows via supply chain effects, "he explained in an emailed response to Channel NewsAsia.
"For example, only 65 per cent of the value of Chinese exports to the United States from China itself, with the rest of the United States. These firms would have the US tariffs to Chinese goods, and TiVA data helps to quantify that damage. "
For Singapore, the estimated value-added in Chinese exports to the US is at 1.33 per cent of its GDP, while that of US exports to China at 0.08 per cent. According to Mr Botham, that makes Singapore the fourth most vulnerable country to China-US trade in its position in the global value chain.
IMPACT "LIMITED" FOR NOW
Nevertheless, the impact remains minimal for now.
"The tariffs that have been imposed only in certain sectors. They have not impacted consumer goods, especially electronics that make up a key component of Singapore's exports, "said Ms Fenner.
"
"For now, there is not much of an impact yet."
Minister for Trade and Industry Chan Chun Sing had previously said that the tit-for-tat tariffs between US and China have had "limited" negative impact of about 0.1 per cent on Singapore as they affect only a "modest share" of the country's exports.
Meanwhile, the Monetary Authority of Singapore (MAS) on Wednesday said the local economy will likely remain on a steady expansion path this year despite escalating trade tensions.
Full-year GDP estimates are at around 2.5 per cent to 3.5 per cent – unchanged from the growth forecast range announced in May.
Still, its chief Ravi Menon cautioned that the country is in a position of a niche in such a way, that it needs to guard against spillover effects which are the "real risks" of the ongoing trade
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