Singapore economy can overcome tariff and war risks as global trade continues to grow

SINGAPORE - Global trade may continue to flourish as companies across Asia rewire their supply chains and invest in their resilience in response to a series of shocks in the past few years from tariffs and wars.

Analysts believe the growth in goods trade will again defy pessimistic expectations, as it did in 2025, and deliver the much-needed boost to export-driven Asian economies such as Singapore.

London-based HSBC, for one, believes the reshaping of global trade is underpinned by some durable trends, and is supported by some innovative ways of financing the cost of the shift to shock-resilient supply-chains strategies.

US investment bank Morgan Stanley says geopolitical tensions are driving Asian companies and governments to accelerate spending on energy security, artificial-intelligence infrastructure and defence, among other things, powering an industrial super-cycle.

The multi-year rise in capital expenditure will lead to a trade boom in Asia, catalysing job creation and wage growth across the region.

Mr Aditya Gahlaut, who heads HSBC’s Asia global trade solutions business, said that companies have become used to an ever-changing narrative on everything, from tariffs to the impact of geopolitical tensions and wars.

“Volatility, which was considered as an event that happened every now and then, most corporates you speak to today say that it is a permanent feature now and is part of our playbook,” the Hong Kong-based banker told The Straits Times in an interview.

Instead of reacting to shock developments, companies are quietly trying to make their businesses more resilient to unexpected events, he said.

Mr Gahlaut noted that companies used to focus solely on efficiency – housing manufacturing and supply chains in the most cost-efficient location. Now, he said, resilience and sustainability are of equal importance – meaning companies now have or are investing in multiple supply chains so that they continue to trade, no matter how the status quo ante changes.

Bolstering the rewiring of trade are some broader long-term changes as well.

For instance, services trade – helped by technological innovation – has grown at least twice as fast as goods trade in the past 10 to 15 years. But that growth in services has also expanded accessibility to goods. Wearables, such as smartwatches, best exemplify the intertwining of services and goods trade. People buy these watches and keep tabs on their health by logging in to internet-based services provided by watchmakers.

Also, subscription-based streaming services, such as Spotify and Netflix, have boosted demand for devices such as high-fidelity headphones and speakers, and smart televisions.

In addition, any company can now sell its products via an e-commerce platform. Large companies have their own online sales platforms. Mr Gahlaut said these platforms help companies boost sales without the administrative hassle of managing logistics.

For most fast-moving consumer goods, some platforms maintain inventories spread across the globe to minimise shipping delays and expenses. That is another cost out of the way for manufacturers.

However, there is a price tag to having multiple supply chains.

“Historically, companies would have one supply-chain strategy. Today they have a portfolio. But this logistics optionality... obviously comes with a cost,” said Mr Gahlaut.

However, companies do not want to finance it by taking debt on their balance sheet as maintaining resilience also means keeping a lot of free-flow cash, he said.

Hence, while there is a big boost in capex or capital expenditure – and it is an ongoing trend – companies are moving the incidence of capex to their suppliers and financing the contract from their core business revenue.

For instance, a company building an airport can invest in lighting and air-conditioning and take on the expense of maintaining it. But increasingly, companies are offering long-term services contracts to firms that supply and maintain lighting and air-conditioning systems, even committing to a reduction in electricity expenses.

The manufacturers in turn are tapping banks, like HSBC, to monetise the contract – which means the bank will pay upfront their money and get paid from the services contract earnings.

Banks are also stepping in to provide working capital – funds a business needs to run its day-to-day operations and meet short-term obligations.

Mr Gahlaut said that to fund their working-capital needs and to manage the risk of new counterparties, companies are increasingly seeking financing support from banks to monetise upfront their receivables that are usually spread over months.

All these financing arrangements have also worked well for banks. The Euromoney Trade Finance Survey for 2026 ranked HSBC as the world’s top provider of trade finance – making it the ninth consecutive year the London-headquartered bank was voted No. 1.

The massive surge in capex worldwide and particularly in Asia, which is at the forefront of global manufacturing and trade, is being supported by the successful management of financing.

Morgan Stanley’s chief Asia economist Chetan Ahya and Asia economist Derrick Kam wrote in a recent report that Asia’s gross fixed investment will reach US$16 trillion (S$20.5 trillion) by 2030, up from US$11 trillion currently.

That represents capex growth three times faster than the pace of growth seen between 2023 and 2025.

This capex surge will not remain confined to investment alone: As capex rises, it will catalyse job creation and wage growth, which in turn lifts consumption, creating a self-reinforcing virtuous cycle, they said in the report.

Morgan Stanley’s economists noted that the outlook for global trade is improving, underpinned by the stronger global capex cycle. They project that global capex growth – ex-China property investment – will improve from 3.9 per cent in 2025 to 4.3 per cent in 2026.

This backdrop will continue to support trade and economic growth across Asia, despite the risks from the inflationary impulse from higher energy costs due to the conflict in the Middle East and uncertainty over US tariffs.

Mr Gahlaut said Singapore – a trusted manufacturing, trade and financing hub – will benefit more than others.

“Singapore... is relatively better placed today and will continue to be relatively better placed than most economies in Asia,” he said.

“Singapore is increasingly positioning itself as the gateway for the world to the rest of Asia. And with the focus on technology, upskilling people, green transition, I think it has got the perfect ingredients to continue to be used as a hub for growth. So I do think it is very well positioned,” he noted.

While Singapore is on watch for external risks, the Ministry of Trade and Industry has maintained its 2026 GDP growth forecast of 2 per cent to 4 per cent, following a 5 per cent expansion in 2025.

It has also recently tweaked its monetary policy – seeking a stronger trade-weighted Singapore dollar – to contain inflation.