The word ‘tariff’ has been used by US President Donald Trump to seduce Americans to return him to the Oval Office. But for the country's trading partners, threats of tariffs as high as 60% is a negotiation tactic used by America to extract certain concessions, says veteran Singapore diplomat Chan Heng Chee at a forum organised by UOB.
“He’s been echoing 25% on Mexico, and 25% on Justin Trudeau’s Canada. What did he get? Mexico’s president, Claudia Sheinbaum pushed back, but she agreed to control immigration and to a certain extent fentanyl, so he got what he wanted,” says Chan, a long time former ambassador to the US.
“With Canada, Justin Trudeau is out. So it’s a bargaining tool, and I can see him using tariffs again as leverage,” adds Chan, who is now ambassador-at–large at the Ministry of Foreign Affairs.
The butterfly effect on Asean
While China is at the front and centre of this trade war, Chan warns that Asean countries might suffer collateral damage too. She notes that a “universal 10% to 20% tariff on key markets” will result in a long, uncertain economic environment for the region.
She adds that although Singapore is in a small ring of countries with a free trade agreement (FTA) with the US, this does not necessarily mean that the nation is safeguarded against protectionism.
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“FTAs, they are not foolproof; they are not shields. While we have a FTA with the US, there's a provision in the FTA- everyone’s FTA, which allows the US to waive this, to bring in tariffs if need be. You have a waiver as long as it’s a matter of national security, and today, everything has to do with national security,” she says.
Chan adds: “We provide facilities for the Americans, we don’t rush to judge America, and we generally are seen as a friendly country to them. These factors may help, but they don’t provide immunity.”
In spite of the challenging outlook, Chan says that Asean countries have not been standing idly by, and most countries have been proactive in diversifying trade relationships. She continues: “The region is not overly dependent on the US now. Thailand, Malaysia, even Cambodia and the Philippines, have been signing new trade agreements. Everyone is serious about the game for new markets.”
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Furthermore, Asean nations have benefited from supply chain diversification, as evidenced by multinational companies relocating factories from China to countries like Vietnam, Thailand and Malaysia. Vietnam in particular, Chan says, could be one to watch.
She explains: “The one thing about Vietnam is that Secretary-General To Lam had a very good call with Trump and I think he (Trump) likes Vietnam. He’s been to Vietnam twice in his first term and Secretary-General To Lam and Elon Musk are also working on projects, like Starlink’s internet services. I do not think there will be tariffs on the country, but there could be negotiations.”
Despite the uncertainties and challenges, Chan maintains a positive outlook for Singapore.
“We weathered so many crises, the Asian financial crisis, the American financial crisis, the pandemic, we’ve handled all of these very well.
“In fact, in a scenario like this, this could be Singapore at its best. When we are challenged, we come together and think fast, how do we turn around? How do we take advantage of new ways of changing? What do we do for our economy? We're quite nimble at that, and that’s our DNA,” says Chan.
