Opinion | Singapore just gave a verdict on who’s winning the trade war
The U.S. and China are fighting a trade-bordering-on-currency war, the domestic economies of both giants are cooling, Germany is flirting with recession, yields on 10-year Treasury notes are tumbling.Updated: Aug 13, 2019 11:29 IST
Singapore just gave a verdict on who’s winning the trade war. The answer is few countries, if any, in Asia.
The deep cut Tuesday in the trade-reliant economy’s growth forecast was disappointing, albeit not startling. There may be no expansion at all. Growth is likely to be between zero and 1% this year, compared with a previous projection of 1.5% to 2.5%.
Surprising or no, it’s tempting to see Singapore’s funk as symptomatic of the state of the world. After all, the place rightly burnishes its efficient port and state-of-the-art airport, and links to global commerce and financial markets. Many firms choose Singapore as a base for regional or Asia-wide operations. If ever there was a city plugged into the ebb and flow of capital, goods and trans-Pacific economic diplomacy, it’s Singapore.
And the world looks grim. The U.S. and China are fighting a trade-bordering-on-currency war, the domestic economies of both giants are cooling, Germany is flirting with recession, yields on 10-year Treasury notes are tumbling. Violence seems the order of the day in Hong Kong. And just for a bit of continuity, Argentina is in dire straits.
Let’s set some of this aside. Much of this laundry list of doom, while topical, has roots in long-term forces that have little or nothing to do with Singapore. What really matters is that trade and export supply-chain models that have served large parts of Asia very well are under strain. Even now, it’s a leap to say the model is in terminal decline. You can say it isn’t traveling well.
The mood music in Singapore policy-making has been dour. It was already clear that some outlook revisions were warranted from the first estimates of second-quarter performance. A few weeks ago, the government reported that GDP shrank an annualized 3.4% in April to June, a number that was borne out in Tuesday’s final numbers showing a retreat of 3.3%. In Prime Minister Lee Hsien Loong’s National Day message last week, he left listeners in little doubt that economic times have been better and that stimulus is in the cards.
The Monetary Authority of Singapore is likely to ease policy when it reviews its stance in October, economists say. Fair enough. Central banks throughout Asia and beyond have responded to slackening conditions by reducing interest rates.
Beyond immediate textbook responses, it’s worth asking deeper questions about the pillars on which Asia’s most successful economies have built their gains. This goes beyond any one country. The basic development model for the region and, in some ways for emerging markets generally, was plug yourself into expanding trade and capital flows. Start with low-cost manufacturing, then move up the chain. Use the chain, and competition from neighbors playing the same game, to bolster education and regulatory frameworks. Attract service industries and, gradually, wean yourself from the lowest-cost stuff.
Once China began opening its economy in the late 1970s, this model got greater impetus and credibility. Export and you couldn’t go wrong. Remember the term “tiger” in reference to Asian economies? You need to go to the archives now to read that one.
With merchandise trade no longer necessarily the model of the future and with the twin engines of the globalized economy at loggerheads, the time for a rethink or at least some serious scrutiny is here. To give Singapore its due, the city-state’s leaders often speak of the need for reinvention and the country has been more successful than most.
Even in the pessimism of the moment, there’s a need for perspective. The International Monetary Fund, comprised of people who are supposed to be pessimists, has taken to the habit of regularly updating its forecasts. While downgrades have been the order of the day lately, the absolute numbers are far from a disaster: a 3.2% global expansion this year, rising to 3.5% next year.
If that doesn’t buck you up, then there’s always Argentina to remind of us of how bad things can be. Prone to flawed decisions in good times and bad. Almost comforting, actually.