Change in the White House

Trump and the Singapore economy

The biggest global market impact of the Trump election to date is the flood of capital into the US in anticipation of higher returns from fiscal stimulus and monetary tightening (rising interest rates).

This has led to depreciation of the euro, yen, yuan, pound and emerging market currencies, with the ringgit and rupiah among the hardest hit. The Sing dollar has also fallen against the US dollar, but going forward it could strengthen against other Asian currencies. The increased burden of US dollar-denominated debt and rising interest rates could precipitate a financial crisis in some countries, in which case the Sing dollar would become a "safe haven" and strengthen.

It remains to be seen if financial deregulation will increase the risk of financial crisis. While Mr Donald Trump and Congressional Republicans want to dismantle the 2010 Dodd-Frank legislation, and Mr Steven Mnuchin (nominee for treasury secretary) opposes the "Volcker rule" in particular, Trump adviser Carl Icahn favours it, and the President-elect himself has railed against favoured tax treatments enjoyed by Wall Street (which might incentivise excessive risk-taking).

Uncertainty about Federal Reserve policy after the February 2018 expiry of the term of Fed chairman Janet Yellen, who Mr Trump has criticised (but Mr Mnuchin and Mr Icahn have defended), could increase volatility in currency markets, especially if Mr Trump follows through on hints that he might interfere with the Fed's political independence.

If penalising countries for "currency manipulation" becomes a tactic to improve the US trade deficit, Singapore is likely to escape penalty despite its persistently large current account surpluses (indicative of an undervalued currency) because of its small size and frequent bilateral deficit with the US.

US tax reform is more likely to impact Singapore. A lower US corporate tax rate reduces the incentive for multinationals to hold funds and relocate operations offshore, affecting Singapore's financial and manufacturing sectors respectively. This, and a proposed shift to "territorial" taxation (based on where revenues occur) add to other global efforts, like the OECD's Base Erosion and Profit Shifting programme, to reduce the use of tax arbitrage strategies by multinationals, on which Singapore has long relied to attract foreign investment.


PSA's Pasir Panjang container terminal. The greatest risk Mr Trump's economic policies could pose to Singapore and other countries lies in trade. ST FILE PHOTO

Such investment could also be discouraged by Mr Trump's nascent industrial policy: threatening adverse "consequences" for US companies which locate production offshore to supply the US market, and encouraging "beggar-my- neighbour" corporate subsidies to incentivise production in the US that would otherwise not occur in market-based resource allocation.

A US-China 'trade war' will quickly impact other Asian countries, especially those involved in China-centred manufacturing supply-chains, while undermining the rules-based WTO trade regime, on which the whole world relies.

But tightening immigration could add to the US skills shortage in encouraging firms to locate skill-intensive activities offshore, most likely in countries with large markets and abundant skills. While Singapore does not qualify on either criterion, the Asian region as a whole does, and Singapore could enjoy spillover benefits.

The greatest risk Mr Trump's economic policies could pose to Singapore and other countries lies in trade. Imposing the threatened high unilateral tariffs on imports from select trade partners will hurt US consumers and businesses, reducing their purchasing power and cost-competitiveness respectively, slowing US (and thus worldwide) growth.

Retaliation by the affected trade partners, as China has already promised, will worsen the slowdown in global trade that has been under way for some years, adversely affecting Singapore more than most because of its heavy trade dependence. A US-China "trade war" will quickly impact other Asian countries, especially those involved in China-centred manufacturing supply-chains, while undermining the rules-based WTO trade regime, on which the whole world relies.

Taken together, if the Trump economic team enacts even some of his promised policies, they will reinforce and accelerate the de-globalisation trends that I have previously argued make it necessary for Singapore to reorient its development strategy from multinational-led manufacturing for export to global markets, towards local entrepreneur-led participation in the faster-growing South-east Asian regional market.

The good news is that the Trump team is unlikely to deliver on all or even most of his policy promises, and if it does, accelerating the reduction of Singapore's economic dependence on the US (and China) is not a bad thing for its long-term future.


  • The writer, an economist, is professor of strategy at the Stephen M. Ross School of Business, University of Michigan.
A version of this article appeared in the print edition of The Straits Times on December 30, 2016, with the headline 'Trump and the Singapore economy'. Print Edition | Subscribe