Will Tariffs Break Trade? And Can Singapore Still Win?

What’s the Impact of Trump’s Tariffs?

And is Singapore in trouble?

Some of my students — and even a few friends and relatives — have been asking me: What do you think of the Trump tariffs? Is Singapore going to be affected? Are we in trouble?

To be honest, I don’t think anyone has a complete answer. Not even the experts. No one truly knows how this will unfold or how severe the fallout might be.

But I’ve been thinking it through, and this is how I’d logically reason it out from my point of view.

First — What’s Trump Trying to Do With These Tariffs?

Trump believes that America’s trade deficit is a problem. A big one.
He thinks the US has been shortchanged in global trade — especially with China — and his solution is to slap tariffs on imported goods.

From his perspective, tariffs are meant to:

1. Reduce the trade deficit — because imported goods become more expensive, so Americans will buy fewer imports.

2. Bring manufacturing jobs back to the US — by making it more expensive to produce overseas, US firms might return and invest domestically.

3. Raise tax revenues — the tariffs themselves act like a tax on imports.

That’s the intention.

But What’s Likely to Happen Instead?

This is where things get messy.

1. Consumers will pay more.
   When imports become more expensive, that cost doesn’t just disappear — it gets passed on to American consumers. That means higher prices and inflation.

2. Firms will suffer cost-push inflation.
   Many US companies rely on imported components and raw materials. Tariffs make those more expensive too. Costs go up. Margins get squeezed. Some of this will be passed to consumers, and some will hurt profits.

3. Investor confidence could take a hit.
   If firms see rising costs, lower demand, and political instability, they may hold off on investments. That can cause longer-term drag on the economy — stagnation, or worse.

So while the intention might be to revive the US economy, there’s a decent chance this leads to the opposite — stagflation, with inflation and stagnating growth happening at the same time.

So What About Singapore?

Singapore will be affected.

Even though the baseline 10% tariff being rolled out by the US applies to hundreds of countries including us, that’s not really the point.
The problem isn’t the size of the tariff — it’s the collapse in global trade volumes that could result from it.

We’re one of the most trade-dependent economies in the world.
If trade slows, demand for our exports will shrink. That directly hits our GDP. No way around it.

And if global firms see too much uncertainty — whether due to US policies, Chinese retaliation, or geopolitical tensions — MNCs may delay or reduce their investments, adopting a cautious, wait-and-see approach.

All of that hurts us.

But There’s a Flip Side

It’s not all bad news. There’s also a possible upside here.

Because the US tariffs don’t hit all countries equally, some firms may decide to relocate operations to countries like Singapore, which face lower tariffs or are seen as more stable.

If you’re a global MNC and you’re looking for a politically neutral, well-connected hub in Asia, Singapore looks pretty attractive right now.

So instead of a fall in FDI, we might actually see increased inflows — firms setting up here to hedge against tariff risks elsewhere.

What Might Actually Happen? Three Possible Scenarios

Now this is the part that I find harder to pin down.

There are 3 possible ways I think this could all play out — and each has very different implications:

1. Internal Resistance Within the US

There’s currently a 90-day pause in the implementation of reciprocal tariffs.

During this time, we might see pushback from inside the US — whether it’s from the Senate, the House, Trump’s own administration, or even financial markets reacting to the effects on US Treasury yields and interest rates.

If the opposition is strong enough, some of the harsher tariffs might be delayed, watered down, or even reversed.
That would reduce the damage — though I doubt we’ll return to the “pre-Trump” global trade status quo. The whole US trade stance has shifted. Even with a rollback, this pushback against globalisation is likely to persist in some form.

2. Tariffs Go Ahead, But Backfire Politically

If the tariffs do go through — and the consequences play out the way many economists predict — we could see inflation and stagnation in the US.

That could become politically painful.

By the time the 2026 mid-term elections roll around, the public might be frustrated enough that the Republicans lose control of both the House and Senate.
If that happens, the Democrats could quickly move to reverse or moderate some of the policies — especially if the economic pain is clear.

3. Worst Case: Nothing Changes for 3 Years and 8 Months

This is the scenario where the tariffs go ahead, there’s no significant resistance or reversal, and we’re stuck with this trade environment until the end of Trump’s term.

That’s 3 years and 8 months of uncertainty, slow growth, and economic strain.

In that case, we’ll have to hunker down and ride it out until a new administration comes in and hopefully reopens the door to global trade.

Am I Worried? Yes. But I’m Not Panicking.

I’ve told my students this straight — yes, I’m concerned. But I’m not pessimistic.
And I don’t think we should be.

In fact, I think we’ve got what it takes to ride this out. Not just survive, but emerge stronger. Here’s why:

1. We’ve Bounced Back Before — Every Time

Whenever a major crisis hits, Singapore always gets hit hard — but we always come back stronger.

• Global Financial Crisis (2008): Brutal. But we rebounded fast.

• COVID-19 Pandemic: Our economy took a big hit, especially in sectors like aviation and tourism. But we pivoted, adapted, and recovered.

There’s always a downturn period, yes. But if you look at the track record, we’ve consistently used each crisis to retool and restructure for the future.

2. The World Will Respond Too — Not Just the US

Let’s not forget: Trump’s tariffs hit everyone.
It’s not like Singapore’s the only one being targeted.

The US is taking a unilateral approach — slapping tariffs on almost every major economy. That means other countries will start turning towards one another to recover lost trade volumes.

They’ll deepen regional cooperation. Form new alliances. Sign new FTAs.
And Singapore? We’re well-positioned to ride that wave.

This isn’t new for us.

When Trump tore up the TPP in his first term, Singapore didn’t just sit back and sulk.

• We kept working quietly behind the scenes with the other countries.

• We rebranded it as the CPTPP — and it lives on, without the US.

• We also signed the RCEP, deepening our trade ties across Asia.

So yes, trade with the US might fall. But we’ve shown before that we can make up for lost ground elsewhere.

It takes time, sure. But in a world driven by self-interest, I believe countries are going to respond — not just accept being shut out by the US.

3. Our Reserves Give Us Firepower

This is the part I think not enough people talk about.

We’ve been drilling this narrative into ourselves for years — and honestly, for good reason:
We need significant reserves.

Go take a look at global rankings of sovereign wealth funds (SWFs).
You’ll see Singapore right up there with the biggest — China, Norway, UAE.
But here’s the thing — we don’t have oil. Norway does. And yet, our reserves are still in the same ballpark.

No one outside the government knows the exact number, but if you look at available estimates and add in a bit of informed guessing, we’re probably sitting on $2 trillion.

That’s $2 trillion for a population of just 6 million, of which only about 4 million are citizens and PRs.

That is enormous.

And these reserves?
They’re not just there to make us feel safe.
They’re our dry powder — our fiscal firepower — our insurance policy for a real crisis.

Not Just a Theory — We’ve Used It Before

During COVID, we tapped into the reserves — around $50 billion was drawn down to support jobs, businesses, and the healthcare response.

And guess what?

With smart long-term investing and disciplined governance, we likely made that back in just a few years. That’s how effective it’s been.

This Is Why the Reserves Matter

If this trade war and its ripple effects drag on for 2 to 3 years, similar to how COVID played out — we’re not going to collapse.

We’ve got resources to buy time, sustain jobs, restructure industries, and pivot where we need to. We have dry powder, and we can tap on it without panic.

We won’t die from this.

That’s the whole point of the reserves.

And in fact — this situation only reinforces the very narrative we’ve been telling ourselves for decades:

That we need the reserves for a rainy day.

Well — it’s raining again.

We’ve now seen three major rainy days in quick succession:

1. Global Financial Crisis

2. COVID-19 Pandemic

3. Trump’s Tariff War and Trade Retaliations (aka Global Trade Realignment)

Each time, the reserves gave us the confidence and capacity to respond — not just react.

So when people question why we hoard so much…
This is the answer.

And that’s why we can afford to take a proactive, even bold stance, when others might be paralysed by uncertainty.

What Can We Do? (A Little Economics Now)

Let’s bring it back to the basics.
You all know this: AD = C + I + G + (X — M)

If I (investment) and (X — M) (net exports) are going to take a hit because of global uncertainty, what options do we have?

We boost C (consumption) and G (government spending).

And we can. We’ve got the reserves and the policy space to do it — as long as we’re smart about how we go about it.

Boosting Consumption ©

We can stimulate household spending by:

• Raising household incomes (through transfers, wage support, etc.)

• Reducing the need to save excessively

One simple way to reduce forced saving? Control housing prices.

If families don’t have to sink such a large proportion of their income into home payments, they’ll have more disposable income for other spending. That increases consumption, supports demand, and keeps the economy humming.

Boosting Government Spending (G)

There’s also room for the government to accelerate infrastructure projects — transport, schools, green development, you name it.

We could:

• Hire more teachers, healthcare workers, and public sector staff.

• Speed up planned construction or digital infrastructure rollouts.

• Invest in long-term productivity tools (like AI training, robotics, etc.)

But.

This isn’t a simple plug-and-play. You know how economics works — every action has trade-offs.

Let’s Pause and Think Through the Downsides

These are the unintended consequences we need to be mindful of:

• Too much spending in certain sectors = inflation risk.
  E.g., if you pump too much money into housing construction, property prices may spike again.

• Raising wages = risk to competitiveness.
  Higher household incomes often mean higher wages. But that could make Singapore less attractive to investors, or make our exports more expensive in a global market.

• Rapid hiring = lower quality.
  If we rush to hire teachers or civil servants to “boost G”, we might compromise on the quality of hires. That creates long-term problems down the road.

So yes, we can and should act — but it needs to be measured, targeted, and carefully managed.

Maybe It’s Time to Rethink the FDI-First Strategy

Something I’ve been mulling over:
Is this a good time to start investing more in our own local firms?

Foreign direct investment (FDI) has been great for Singapore. It brought us technology, know-how, access to markets, and built up entire sectors from scratch.

But if every economic strategy hinges solely on “how do we attract more MNCs,” we’re always at the mercy of global boardrooms.
One policy change overseas, one geopolitical shock, and we’re forced to react — instead of charting our own course.

Maybe it’s time to complement our FDI engine with a serious push to grow our own local giants.

We’ve Already Diversified Well — Let’s Go One Step Further

When you take a step back, Singapore’s economy today is very diversified.
We’ve moved far beyond just electronics or petrochemicals.

We’ve got:

• Manufacturing — across semiconductors, pharmaceuticals, precision engineering.

• Services — in finance, law, healthcare, education, consulting.

• Hub functions — aviation, logistics, tourism, digital infrastructure.

We’re not just a single-industry town.

But while we’ve diversified across sectors, we’re still over-reliant on foreign players in each of those sectors.

What if the next phase of growth is about building up our local capabilities within those same sectors?

From Transfer to Transformation

Think about it this way:

We’ve spent decades attracting MNCs.
And with them, came:

• Capital

• Talent

• Tech

• Best practices

That’s great. That’s phase one.

But after all that knowledge and tech transfer, shouldn’t phase two be about seeing our own local firms grow into that next tier?

The goal shouldn’t just be to support SMEs to survive — it should be about helping some of them scale up and become the next MNCs, headquartered in Singapore, hiring Singaporeans, exporting globally.

That’s how we ensure long-term resilience, not just short-term survival.

Long story short?

Yes, we’re entering a tricky period.
Yes, the tariffs will hurt. Trade will slow. Growth will dip. Some uncertainty is inevitable.

But no, I don’t think Singapore is in trouble.

In fact, if we play our cards right — this could be a moment of opportunity.

We’ve been through major storms before, and each time we didn’t just recover — we restructured, retooled, and came out stronger.

This time shouldn’t be any different.

But we need to resist the temptation to just wait it out or do the same old things.
Instead, we can use this period to:

• Strengthen our domestic economy

• Diversify where we rely on foreign capital

• Grow our own champions

• Re-think how we support C and G to compensate for weak I and X-M

• Tap on our reserves to do all this without panic and with strategic intent

Because if we do that — I think we’ll not only ride through this…
We’ll come out of it better prepared for the next crisis, too.