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Singapore could be the first casualty of a looming trade war

Singapore could be the first casualty of a looming trade war

SINGAPORE: Singapore stands to lose as much as $22b in the case of a full-blown trade war which could smash financial markets and hit domestic manufacturing sectors in the city-state, according to analysts.

This comes as US President Donald Trump issued hefty tariffs of 25% on steel and 10% aluminium imports which raises the possibility of a trade war should other countries raise their own rates in retaliation.

“Trade war could trigger the risk of a recession. Risk assets will likely to be depressed for an extended period, until a ceasefire is reached, and typically when the economic losses are significant for all parties involved,” Bank of Singapore senior investment strategist James Cheo said in a report.

“The possibility of a global trade war scenario present significant concerns for a large proportion, or 88%, of respondents. This is more than double that in the December survey,” MAS noted.

However, such a massive loss would only occur in the worst case scenario, said Sian Fenner, lead economist at Oxford Economics. In an interview with Singapore Business Review, she noted that this would only occur if the Western superpower defaults on its trade obligations and pulls out of the North American Free Trade Agreement and imposes blanket trade tariffs on China, South Korea and Taiwan, prompting the countries to retaliate.

“This would hit world trade and global financial markets adversely affecting Singapore’s domestic manufacturing sectors and export-dependent services such as transport and storage,” said Fenner.

This could lead to as much as $22b loss in end-2019 GDP to the extent that the the central bank wou have to intervene to avoid subsequent market shocks. “In the event that this worse scenario played out the MAS could loosen monetary policy by adopting a depreciation bias or at the very least maintain its current zero appreciation bias in SG$NEER into 2020,” she added.

Against this bleak outlook, economic growth will inevitably slow down to 1.8% in 2019 from 3.6% in 2017 because even if tariffs are not imposed directly on Singapore, exports would still reel from lower Chinese and regional trade.