The greater danger from a US-China trade war is not just in higher tariffs or damage to trade, but the souring of Sino-American ties more broadly, Prime Minister Lee Hsien Loong said yesterday.
Singapore and the region have to be prepared for this possibility, he added, saying that it "would make it very difficult for all the countries in Asia who are trying very hard to become friends with both, or stay friends with both".
Speaking to Singapore reporters at the end of his five-day visit to China, PM Lee said the numerical impact of such a conflict in terms of trade volume, tariffs, trade diversion and investment projects that become aborted can be estimated and "probably is not enormous".
But the region would be affected "in terms of the impact on the overall bilateral relationship between China and America, the difficulty they will have cooperating in many different areas where the world depends on them cooperating, and the awkwardness and the sourness in the relationship".
A trade war will have an impact on Singapore and global security, he said. "We can't quantify the impact on us, we know that it means we are in for a more uncertain time. It means we have to be prepared psychologically."
He added: "We have had 50 years of peace; the next 50 years, we pray, will be peaceful."
PM Lee had stressed the importance of openness and multilateralism - as opposed to unilateral actions - in his meetings with Chinese leaders this week.
At the DBS Asian Insights Conference in Shanghai yesterday, he said a trade war could damage trust between the US and China as well as their cooperation on global issues such as climate change, extremist terrorism and North Korea - thereby affecting global security.
The fact that some of China's manufacturing might move to South-east Asia in the event of a Sino-American trade dispute is "consolation crumbs that do not make good the loss to all of us", he said.
The US has threatened to impose tariffs on Chinese imports, and China has responded with a list of US imports it plans to impose tariffs on, roiling global markets and stoking fears of a trade war. PM Lee said while the Americans have taken certain unilateral moves, the Chinese have responded in a cautious and very carefully considered manner.
He later told Singapore media that Chinese leaders are "trying their best to think through how this can be resolved, trying to protect their position because it is not possible for any country to be in this situation and not have any response whatsoever".
"They have to respond. But at the same time, they do not want to escalate and they hope that something can be worked out which will diffuse the issues," he said.
Asked about the role Singapore could play, PM Lee said Singapore was not a bridge between the two powers, who have their own links and "do not lack for contact". But what both sides need to do is to establish trust and have a direct, candid discussion on their concerns and problems, he added. "Those are things which have to happen between the participants themselves. Singapore has no role in this, what we can do is express our views. Where it is helpful, we can tell how things are as we see them, and we hope that our perceptions will be taken as being given in good faith and will be found to be helpful."
On Singapore-China ties, he said: "Our relations are in good order. Cooperation is progressing well and we have reaffirmed what we are doing and committed ourselves to taking our relationship forward."
"There is a meeting of minds over what we can do together bilaterally," he added. "With the Chinese announcement that they will continue to open up and liberalise decisively, I hope that there will be further opportunities for our entities and our companies."
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