ASME president Ang Yuit on sectors in Singapore that will be most affected by US tariffs

Key Concepts

• Tariffs and their impact on businesses, particularly SMEs
• Manufacturing and trading sectors most affected in the short-term
• SME responses: waiting for the dust to settle vs. planning for alternatives (Plan B & C)
• Potential opportunities for Singaporean manufacturers due to relative tariff advantages
• Risk of global slowdown and recession due to trade actions
• Reconfiguration of trade flows and potential for higher costs
• Diversification of supply chains
• Support needed for SMEs: internationalization and innovation

Impact of Tariffs on Businesses

The immediate impact of tariffs will be felt by companies with direct trade relationships with the US, especially those in the manufacturing and trading sectors. These companies may have outlets or subsidiaries in affected countries and engage in two-way trade.

SME Responses to Tariffs

SMEs are reacting in two main ways:

1. Waiting and Observing: Some SMEs are taking a wait-and-see approach, recognizing that negotiations are ongoing and the situation is still in flux. They believe the final impact is yet to be determined.
2. Contingency Planning: Other SMEs, particularly those based in countries with a more hardline response to tariffs (e.g., China), are actively developing "Plan B" and "Plan C" strategies to mitigate potential negative effects.

Opportunities for Singaporean Manufacturers

The Singapore Manufacturing Federation (SMF) suggests that the tariffs could create opportunities for Singaporean manufacturers. Dennis from SMF mentioned that Singapore's relatively lower tariff exposure could attract foreign direct investment (FDI) and strengthen the local manufacturing industry. Singapore could become a more attractive supplying location due to lower import taxes/tariffs compared to other countries.

Risks of Global Slowdown and Recession

A major concern is that the trade actions could trigger a recession or near-recession in the US, a major global purchaser. This could lead to a global economic slowdown, negatively impacting businesses worldwide.

Reconfiguration of Trade Flows and Higher Costs

Trade actions are expected to cause a reconfiguration of trade flows, similar to what was observed during COVID-19. Such reconfigurations typically result in higher costs, which can negatively affect most companies.

Diversification of Supply Chains

Firms may choose to diversify their supply chains to reduce their reliance on markets subject to high tariffs. This involves reassessing cost structures in different countries and potentially reshuffling supply chain arrangements.

Support Needed for SMEs

SMEs face two primary challenges:

1. Slow Local Consumption Market: SMEs need support to grow and expand into international markets. The uncertainty created by tariffs makes this support even more critical.
2. Need for Innovation and Competitiveness: SMEs need support to innovate and improve their efficiency to remain competitive in the face of changing trade dynamics.

Support for internationalization and strengthening efficiency is crucial for SMEs to navigate the challenges and opportunities presented by the tariffs.

Conclusion

The imposition of tariffs presents both challenges and opportunities for SMEs. While some SMEs are adopting a wait-and-see approach, others are actively planning for alternative scenarios. Singaporean manufacturers may benefit from increased FDI and a stronger manufacturing industry due to the country's relatively lower tariff exposure. However, the risk of a global slowdown and the potential for higher costs due to trade flow reconfigurations remain significant concerns. Support for internationalization and innovation is essential for SMEs to adapt and thrive in this evolving trade landscape.