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Challenges in the Global Economic Landscape and Finding a Way Forward for Singapore

Continuing from our earlier article, “Examining Singapore’s Trade Links with the rest of the World”, in this article, we examine the challenges in the global economic landscape and finding a way forward for Singapore.

2016 has seen turbulence and uncertainty in the geopolitical and economic landscape with a wave of anti-globalisation and anti-free trade sentiment spurred by popular discontent. The influence of right-wing and populist politicians has spread across Europe and the US, exemplified by Brexit in June 2016, and the unexpected victory of Donald Trump in the US Presidential Elections in November 2016.

Geopolitical shifts are sweeping across the APAC (Asia Pacific) as China ascends as a political and economic power, while Singapore’s SEA (Southeast Asia) neighbours focus on economic development to better compete with Singapore. Singapore needs to negotiate these challenges with the pragmatism and clear-eyed realism that have thus far served it well.



Making America Great Again: At what Cost?

The Presidency of Trump has raised many  questions about the future role of the US in the APAC, including SEA, where ASEAN has fostered stability by maintaining good relations with the US and China. Current discussion centres on the implications of the US withdrawal from the TPP (Trans-Pacific Partnership).

The TPP is a major FTA comprising 12 Pacific nations including the US, Japan and Singapore, which together account for 40% of world trade. The agreement would only go into force if it is approved by six countries that account for at least 85% of the group’s economic output, which makes ratification by both the US and Japan, essential. Notably, China is not part of the TPP, which is viewed as a US-led agreement. Singapore PM Lee Hsien Loong has called the ratification of the TPP a “litmus test” of American credibility.

Consequently, there are question marks over the much-vaunted Asia Pacific ‘pivot’ that the Obama administration had initiated. In addition to the long-standing US military presence in the region, the TPP was to be an economic plank for the pivot.

There are concerns on the impact of a Trump Presidency to the US-Singapore relationship which marked its 50th anniversary this year. During his campaign, Trump had named Singapore as among the countries that were taking away American jobs in reference to Baxter Healthcare Corporation moving 199 jobs from the US to Singapore. That being said, campaign rhetoric should be distinguished from what Trump does once he is in office.

Largely, economic and political watchers expect the impact on bilateral relations to range from adverse to moderate. Under the banner of adverse impact, financial analysts have included Singapore as among the “most vulnerable” countries if the US adopts a more hostile trade policy. As a significant part of US investments in the region go through Singapore’s financial system, a lower volume of funds would impact its financial sector.

Among those who expect any negative impact to be moderate, Ambassador-at-Large Chan Heng Chee, who was previously Singapore’s Ambassador to the US, thinks that instead of being against globalisation, the Trump administration may push for what it considers “fairer trade” for US interests. Trump’s tough campaign rhetoric could be posturing as part of a negotiation strategy, something he takes pride in as a businessman. Economists also note the possibility of a silver lining should Trump adopt a more expansionary fiscal policy with increased government spending. This could provide more jobs and increase consumer expenditure in the US which would boost global exports.



Rise of the Middle Kingdom

China’s categorical rejection of the Permanent Court of Arbitration’s decision in July 2016 that its “historic claim” in the SCS (South China Sea) is invalid reflects China’s growing international stature. With the TPP in doubt, a successful RCEP (Regional Comprehensive Economic Partnership), perceived by many as China’s alternative to the TPP, could mean China expanding its economic orbit over SEA at the expense of the US. However, there could be consequences to Singapore and SEA’s strategy of hedging between the US and China, an approach which has been effective for peace and stability in the region.

There are other examples of China’s growth in the international order. In the 2014 APEC Summit that it hosted, China pushed for exploration of a FTAAP (Free Trade Area of the Asia Pacific) that could be an all-inclusive agreement spanning the APAC region and override separate agreements such as the TPP and RCEP.

China’s evolving priorities have inevitably meant bumps in the Singapore-China relationship. An ongoing issue has been Singapore’s position on the peaceful resolution of the SCS disputes according to international law that is in opposition to China which has refused to recognise the jurisdiction of the tribunal. Elements in China have expressed their displeasure with Singapore over this issue – China’s nationalist newspaper Global Times accused Singapore of attempting to table a SCS-related item at the 17th NAM (Non-Aligned Movement) Summit in Venezuela in September 2016, triggering a response from Singapore’s Ambassador to China to debunk the claim. China’s seizure of SAF Terrex Vehicles in Hong Kong in November 2016 for reasons officially yet undisclosed appears to follow a pattern of increased Chinese scrutiny of Singapore. Singapore will, as always, have to judiciously negotiate these challenges in what is ultimately a comprehensive relationship that is important to Singapore’s economic and strategic interests.



Southeast Asia: Competition Heats Up

Even as there been economic cooperation between Singapore and its ASEAN neighbours, the latter are also developing their own capabilities to better compete with Singapore. Singapore has long used the strategy of being a trading and business hub to outperform its neighbours. The development of SEA will increasingly see Singapore’s neighbours attempting to become hubs in their own right in direct and indirect competition with Singapore.

For example, Malaysia aims to compete with Singapore’s position as an oil trading hub by building two major petrochemical complexes in South Johor to capture spillover business from Singapore. Oil and gas, a key component of Singapore’s economy accounting for 5% of GDP, now faces stiff competition especially considering Malaysia’s comparative advantage in land resources and the global oil slump.

Malaysia is also collaborating with China to build a maritime network of ports between the two countries that would enhance trade, business and tourism, and give China greater access to SEA, a region of strategic importance to Beijing. The network is planned to comprise 10 Chinese ports and six Malaysian ones, including Malacca and Johor. China also plans to invest US$10 billion on a deep sea port in Malacca that could be the biggest in the region when completed in 2025. It would rival Singapore’s own plans to operate a mega port in Tuas from 2020 onwards.



Singapore after 50: The Next Lap

Moving forward amidst such challenges coupled with technological disruption, Singapore needs to make sure its externally-oriented economy is “future proof” against the complexities of the world. It needs to find new pathways for continued economic relevance and to push for greater free trade and connectivity.

The Singapore government’s efforts under the CFE (Committee on the Future Economy) encapsulate Singapore’s efforts to tackle oncoming challenges by developing economic strategies that ensure a vibrant and resilient economy over the long-term. True to Singapore’s free-trade stance, the initiative looks at areas including future connectivity of goods, services, capital, talent and information, and growth industries and markets for the future economy.

Asked for his views on the way forward for Singapore’s economy, Assistant Professor Woo Jun Jie from the School of Humanities and Social Sciences, Nanyang Technological University and Rajawali Fellow, Harvard Kennedy School said: “The development and maturation of SEA economies is inevitable, and this will likely drive the emergence of new financial centres or hubs for advanced producer services. Singapore’s strategy thus far has been to move up the value chain by developing new growth areas, particularly through its ‘Smart Nation initiative’. There is a belief that new services such as data analytics or ‘smart’ technologies can work towards enhancing existing strengths such as manufacturing or finance, and even ultimately grow to become growth industries in their own rights.”

The views shared by Assistant Professor Woo, is similar to what Singapore’s Deputy Prime Minister (DPM) Tharman Shanmugaratnam shared earlier this month at an international affairs conference titled “Has the game changed?”, organized by the Lee Kuan Yew School of Public Policy.  Addressing on cities left behind by globalisation, trade and technological trends, with new products and services replacing old ones, Tharman suggested the regeneration of people’s careers, not redistribution of incomes in societies – “You need redistribution in society, and you may need more in some areas, but it’s not at the heart of the matter… Redistribution doesn’t give hope. Regeneration is what brings hope because you allow individuals, communities and cities to rise through their own abilities” said Tharman.

In negotiating challenges to free trade, Singapore is sticking with the TPP for now while also being engaged on other fronts such as the RCEP, FTAAP, and trade-oriented initiatives such as China’s One Belt, One Road strategy and India’s Act East policy. Small state diplomacy is one of the tools Singapore uses to advance its interests as it engages larger trading partners. The 3G (Global Governance Group), an informal group of 30 small- and medium-sized United Nations member convened by Singapore, exemplifies collective small state diplomacy. In pushing for free trade, the 3G recently called on the G20 (Group of 20) economies to reaffirm their commitment to international trade, reduce barriers to trade and resist protectionism in all forms.

Summing up the strategic reality for Singapore, Assistant Professor Woo said that “In terms of diplomacy, Singapore will need to tread carefully. As a ‘price-taker’ in the world of global politics, Singapore has very little influence over the outcomes of regional and global political contestations. Nonetheless, it will need to live with these outcomes. Hence, the eventual dominance of any particular power over Asia Pacific, or even the world, is not something to be celebrated or rued over. Rather, it is to be strategically evaluated and parsed for potential economic and political costs and benefits to Singapore.”



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