PORT MORESBY - China and the United States have to realise they must accommodate each other for an ongoing trade war between both powers to be resolved, said Prime Minister Lee Hsien Loong.
What happens next will depend on the meeting between Chinese President Xi Jinping and US President Donald Trump at the G-20 Summit in Buenos Aires, Argentina, from Nov 30 to Dec 1 and whether talks can be set on the right way, he noted.
"We all have to hope it goes in a constructive direction. Because otherwise, the loss to the parties, to America and China, as well as to other countries like Singapore and everybody else in the region and in the world will be considerable," Mr Lee said.
Mr Lee's comments came as Asia-Pacific Economic Cooperation (Apec) leaders failed to issue a joint communique on Sunday (Nov 18), reflecting the deep division on trade.
A chairman's statement will be released in lieu of a formal written declaration from the 21-member regional grouping, which was formed in 1989 to promote free trade across the region.
Trade tensions between China and the US dominated the weekend's annual summit in Papua New Guinea, with Mr Xi and American Vice-President Mike Pence trading barbs in back-to-back speeches on Saturday. Mr Pence had stated that the US will not lift tariffs until "China changes its ways".
Reports said the disagreement between Apec leaders stemmed from the US pushing for the communique to include the need to reform the World Trade Organisation.
On how to make progress on what he called a very complicated and difficult issue, Mr Lee told Singapore media the China-US trade war becomes very difficult to solve if viewed as "a manifestation of a fundamental contradiction between two countries".
"Because then the question becomes, why should I make any concession? If I do you'll push me further, if you do I'll push you further," said the prime minister in an interview to wrap up his visit.
But if the conflict is treated as involving specific, practical trade issues which need to be overcome, then it is possible for both sides to deal with the specific issues at hand, he said.
"Presume good faith and good intentions on the other party, and work out practical solutions to those problems," he added, calling it a "chicken and egg problem" that requires a level of trust for both sides to start to resolve.
The US and China have imposed tit-for-tat tariffs on billions of dollars of each other's goods, with both threatening to step up action if necessary.
Mr Lee noted that US Commerce Secretary Wilbur Ross was reported in The Straits Times saying that Mr Xi and Mr Trump are likely at best to agree to a "framework" for further talks to resolve trade tensions when they meet in Argentina.
But just like the Trump-Kim summit held in Singapore in June, the meeting on the sidelines of the G-20 can set talks in a constructive direction, he said.
Resolving the trade war will become much harder if both countries do not reach a basic understanding, he added.
In a presentation to Apec leaders on Sunday morning, International Monetary Fund (IMF) chair Christine Lagarde estimated that a trade conflict could reduce world GDP by 0.8 per cent.
Mr Lee said the amount is derived from the direct impact of tariffs, as well as the implications on investment and on market confidence, among other things.
But ultimately, the consequences of the trade war extend beyond trade, he noted.
"If you go down this path, the consequences are not just trade, but really the overall relationship and the difference between a world where the major powers are accommodating one another, and a world where the major powers are at odds with one another. It's not quantifiable in GDP terms."
The trade war impacts Singapore in many areas, from the economy to politics and security, he said.
Politically, he added, it raises the issue of whether it is possible for a country to be friends with both powers. In terms of security, the question is what the conflict means for the region and the cohesion of Asean as both powers jockey for influence in the Asia-Pacific.
"We have to watch how the situation unfolds," Mr Lee said. "Meanwhile, we must make sure that within Singapore, you stay one, united, and ready for whatever comes."