To counter Trump’s looming tariffs, Indo-Pacific nations band together to boost trade

SINGAPORE – Agency, agency, agency.

With Trump 2.0 tariffs lurking on the horizon, that was the common refrain invoked by several world leaders visiting Singapore this week, in asserting the idea that smaller economies have the power to act for themselves to mitigate the fragmenting effects of the rivalry among great powers such as China and the US.

In the Asia-Pacific, that could well mean increasing regional trade to ensure economic stability. South-east Asia as a bloc is expected to be the world’s fourth-largest economy after the US, China and India by the end of this decade.

“In the context of intense pressure on the global trading system, our region has agency,” Mr Don Farrell, Australia’s Minister for Trade and Tourism, said on Dec 2 in an address at the annual Next Step (Solutions to economic problems) Global Conference. It was organised by the Lee Kuan Yew School of Public Policy and Peterson Institute for International Economics.

“In 2025, it will be incumbent on those of us who understand the benefits of global trade rules to actively engage in support of the multilateral trading system with the World Trade Organisation at its core,” he added.

Incoming US president Donald Trump has so far

vowed to impose punitive tariffs on China, Canada and Mexico,

and he promised more while on the campaign trail. If he goes through with these measures, they may spur retaliatory moves, triggering a trade war. Growth could slow in China, and the reduction in demand would in turn hurt many other exporting countries in the Asia-Pacific.

“The way we manage our interests in the face of challenges involving great powers is only partly through direct dealing. Much of the answer lies in approaching these challenges in regional terms,” Ms Penny Wong, Australian Minister for Foreign Affairs, said on Dec 3 in a dialogue convened by geopolitical think-tank International Institute for Strategic Studies (IISS).

“There is a lot that happens in the thousands of kilometres between Australia, the United States and China, just as there is a lot that happens in the broader Indo-Pacific,” she added.

“I often say that when Australia looks up to the world, we see South-east Asia,” she noted. “This space is central to Australia’s future.”

Australia builds stronger trade ties with South-east Asia

As part of Australia’s economic strategy to increase trade with South-east Asian nations, a A$70 million (S$60.5 million) investment in the country’s last budget to increase the number of Australian trade officials, among other things, has helped to generate A$1 billion worth of trade in the last 12 months, Mr Farrell told conference participants.

Canberra’s South-east Asia Economic Strategy to 2040, launched in September 2023, was born partly out of necessity to look for new export markets after Beijing imposed harsh tariffs in 2020. These came about when Australia’s previous government called for an inquiry into China’s role in the origins of Covid-19.

China is by far Australia’s largest trading partner, worth – by some estimates – about a third of Australia’s annual gross domestic product. Beijing’s retaliatory move adversely affected bilateral trade, hitting Australia’s wine producers particularly hard.

In a paper released in April 2024, the Organisation for Economic Cooperation and Development said a 10 per cent reduction in trade among the major economies could shave 1.2 per cent off Australia’s gross domestic product.

China’s tariffs have largely been removed since current Prime Minister Anthony Albanese

came into power in mid-2022.

Australia and China notched up A$327 billion of two-way trade in 2023, surpassing the A$271.5 billion in 2020.

While Australia’s trade with South-east Asia still pales in comparison to its trading relationship with China, Canberra’s experience in having to diversify trade could also be instructive for its Asia-Pacific neighbours.

Strong bilateral relationships have underpinned these efforts in a world that is far less hospitable, with two wars raging in Europe and the Middle East, in addition to the ongoing China-US rivalry.

Singapore to strengthen friends network

Prime Minister Lawrence Wong said as much on Nov 8, when he convened

a press conference to explain his recent flurry of overseas trips.

He pointed to fading established norms and weakening multilateral institutions that have led to a growing number of state and non-state actors pushing for what they want with little or no consequences. 

“All in all, it means a less hospitable environment, especially for small countries like Singapore, and that is why we have to work even harder to strengthen our network of friends and partners and to work with like-minded countries to shape international norms and rules and to find common ground on issues of shared concern,” he said.

Ms Wong and Mr Farrell, along with Australia’s Deputy Prime Minister Richard Marles, were

visiting the Republic at the start of the week

to meet their Singapore counterparts in foreign affairs, trade and defence, respectively, for the 14th meeting of the Singapore-Australia joint ministerial committee.

A big part of their discussions, they said, was to lay a foundation for a renewal and deepening of the wide-ranging Comprehensive Strategic Partnership (CSP) between both countries in 2025, the 10th year of the CSP and 60th anniversary of diplomatic ties between both nations.

“The fact of the matter is we are now at an inflection point. The contestation between the two superpowers, the simultaneous technological revolutions in the digital space, in biotechnology and in renewable energy, also present another inflection model,” Dr Vivian Balakrishnan, Minister for Foreign Affairs, said at a joint press conference later on Dec 3 after this meeting.

“What you see is evidence of a doubling down in this time of volatility and challenge, and that is why this relationship is so vital,” he added.

Multilateral organisations to protect open markets 

Singapore and Australia have more than just a strong bilateral relationship. They are also strong partners in regional forums such as the East Asia Summit and Asean, and multilateral organisations such as the WTO.

The WTO, however, is under pressure to reform, because the growing geopolitical and international trade complexities have rendered its dispute settlement and negotiating functions irrelevant for its member states.

The tensions and suspicions between China and the US in their rivalry have not only fractured economic and geopolitical relationships among other countries, but have also given rise to grave ramifications for international organisations, deepening the gridlock in these bodies.

Asia-Pacific nations have in the meantime sought to establish some new norms in the last decade, with two multilateral free trade agreements, which both now exclude the US.

The Regional Comprehensive Economic Partnership Agreement counts 15 nations among its signatories, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership includes 11 states, all of whom are Asia-Pacific Economic Cooperation (Apec) members.

“The international economic environment is less benign than it has been at any point over 40 years ago – and I think that is a bit of an understatement – but the WTO middle powers are not helpless rule takers,” WTO director-general Ngozi Okonjo-Iweala told the Next Step conference on Dec 2.

“If they work together, they build coalitions with each other and with smaller developing countries, they can help keep international markets broadly open and advance the much-needed modernisation of the WTO,” she said.

“The open global economy underpinned by the WTO has served middle powers well. I think now it is time for them to step up and defend it,” she added.

Correction note: In an earlier version of this story, we had got the name of Peterson Institute for International Economics wrong. This has been corrected.