The French title of a Barclays report needs no English translation. Of course, the report makes sober reading for those of us in Singapore and everywhere else in the world. All countries are affected by the US administered tariffs including Singapore, despite the US-Singapore Free Trade Agreement. Even the Heard and Macdonald Islands, inhabited mainly by penguins have a 10% tariff imposed. In that respect, Singapore with its 2025 GDP estimated at US$561.73 billion (nominal) and its GDP per capita of US$93,956 according to IMF data, may have gotten off more lightly than other wealthy economies.
"The new tariffs imply significant downside risks to our GDP growth forecasts” Barclays says. “We believe they are likely to be more net-deflationary rather than inflationary. The more open economies of Taiwan, Thailand, Malaysia, Korea and Singapore stand out in terms of economic vulnerability.”
“With US tariffs increasing to 64% on goods imports from China, we estimated that such a trade war would drag China's GDP growth by 1.5-2.5 percentage points (pp),” Barclays says.
Barclays points out that due to the US trade deficit with the Philippines “being practically closed at US$5 billion and the US enjoying trade surpluses with Singapore, the tariffs of 17% and 10%, respectively, are still worse than we expected”.
Trade diversion may not work
Taiwan, Malaysia and Thailand have all received relatively high tariff rates. Originally, market watchers thought these economies could have benefitted from trade diversion. “While Singapore and the Philippines have received relatively lower rates, we take a cautious view on whether they would necessarily benefit from significant trade diversion. We would note that firms seeking to relocate production to export-friendly Singapore would face significant labour supply constraints,” Barclays cautions.
See also: Vietnam and China suffer the most impact from US "Liberation" day
In a somewhat gloomy report, Barclays points out the upshot of the trade war is likely to be easier monetary policy. “The potential for a severe negative shock to global economic growth implies that the possibility of a much deeper monetary policy easing cycle has become quite real. Risks are clearly tilted towards central banks reacting more aggressively and proactively than we expect,” Barclays says.
For instance, Bank Negara could cut its policy rate by 25 bps in May against a background of more-severe-than-expected tariffs, Barclays suggests.
Bank Indonesia has a fine line to tread. If the rupiah weakens, Bank Indonesia may not have the bandwidth to lower rates. Then again, what are its policy options should growth slow down? “Our base case of a 25bp rate cut in 2Q2025 and another in 3Q2025 this year implies the central bank will not wait very long before stepping up support for economic growth, especially in the context of what appears to be a freeze on government spending,” Barclays says.
See also: What to do as US rates stay higher for longer and Chinese rates hit rock bottom
India and Thailand have been openly discussing what additional goods could be purchased from the US to mitigate the tariff risk. The more proactive governments have also made direct overtures to the Trump administration to negotiate, Barclays says.
For example, US and Indian negotiators have had talks ahead of the Apr 2 announcement. “We believe India is likely to take a conciliatory approach to tariffs and is likely to be willing to negotiate to reduce tariffs on a number of product categories, while also easing some market access barriers. But some categories, including dairy and agriculture, could prove more politically difficult for the Indian government to concede on,” Barclays says.
