The company’s trade flows are contained within Australia, Southeast Asia and China and has minimal direct exposure to the US market, whether as a buyer or seller. That means the universal round of tariffs applied by the US will not hit Oceanus in the face.
Nonetheless, group CEO Peter Koh, like all businesses, is concerned about the possible impact of the escalating trade war. Koh says: “Given the deeply interconnected nature of the global economy, we anticipate that ripple effects may still impact businesses worldwide — directly or indirectly.”
To a certain extent, the same can be said of Singapore. Despite buying more from the US than it sells and having a multi-decade-long free trade agreement, the country has been similarly hit with the baseline universal tariff rate of 10%.
The more cheerful observers say that Singapore is now even more competitive than others who are hit with rates of more than 40%, but the sell-down in the markets says otherwise. The Straits Times Index’s steady climb to the 4,000-point level was something local investors have yearned for and it was so for a fleeting moment before things turned south faster than the way up, with a drop of some 15% by April 9, giving up seven months of gains in a fortnight.
See also: China raises tariffs on US to 125% and says it won’t go higher
The flood of tariffs unleashed on April 2 sank stocks and laid to waste the bullish views most analysts held at the start of the year on the US markets. Calling the new tariff policies unleased on April 2 “horrific”, Philip Orlando, chief market strategist at Federated Hermes, has cut his S&P 500 target this year from 7,000 points to 6,500 and from 7,500 to 7,300 next year. And he warns that more cuts might be needed. “To be sure, this situation is fluid, with the data seemingly changing daily, so we may well be overly optimistic with our initial reduction,” he adds.
Yet, in an abrupt reversal after seeing the stress on US Treasuries, Trump allowed a 90-day pause on the so-called reciprocal tariffs, keeping just the 10% base rate – except China, which is hit back with a higher rate of 125%. In response, markets across the rest of the world staged their biggest rallies in years to recover some of the losses.
See also: Trump lifts China tariffs to 145%
Volatility remains
Having been compelled to rapidly interpret and give a view in reaction to Trump’s barrage, market commentators are understandably cautious. “Companies may struggle to react, invest, and grow meaningfully due to this sudden policy shift, with uncertainty about the form or results of deals reached within the 90-day window,” says Ray Sharma-Ong, head of multi-asset investment solutions, Southeast Asia, at Aberdeen Investments. “This will make it difficult for the market to price in potential earnings till there is clarity on this,” he adds.
“Market volatility is likely to remain elevated in the weeks ahead as investors assess rapidly shifting tariff developments and consider the potential implications for growth, inflation, central bank policy, and financial markets,” says Mark Haefele, chief investment officer for global wealth management at UBS.
Haefele points out that the tariff pause on April 9 opens the door for potential tariff reduction “deals”, which is consistent with an “escalate to de-escalate” strategy toward much of the world. “At the same time, we remain mindful of the greater-than-expected escalation between the US and China, the precise details of the latest US policy shift have yet to be announced, and it is not certain that the proposed pause will hold,” he warns.
Meanwhile, the market remains uncertain. “The rebound in global markets on April 9 and 10 offers investors an opportunity to take stock, diversify portfolios, and prepare for what we still believe is likely to be a volatile second quarter while positioning for what we still expect to be a longer-term upside,” says Haefele, whose team sees investing potential in themes of artificial intelligence, longevity, and power and resources. “While companies exposed to each of these ideas have been caught up in near-term derisking, we expect structural trends to be the biggest drivers over the long term,” he adds.
Restructuring catalysts
Before the tariffs pause, in Asia, where tariff rates have been rigged at a higher level than most, the mood was one of universal anxiety. “Economists don’t like to exaggerate too much, but here, it is difficult not to exaggerate. These are very significant tariffs, particularly for a region where the economies are built on exports,” says HSBC’s chief Asia economist Frederic Neumann.
“If you think about the shift of global manufacturing over the last few decades into Asia, a lot of these goods are produced here and then shipped back to the US. It was a benefit for Asian producers. But now with these tariffs coming in, the entire model is coming under pressure,” says Neumann, speaking in the bank’s April 4 podcast.
US consumers face uncertainty over how much more they have to pay for their iPhones, but what is also dismayingly clear is that non-US economies need to think beyond surviving the next few quarters by cutting interest rates or applying some stimulus. They need to re-evaluate their own longer-term growth models.
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To this end, China, the original target of the trade war, is already in second gear in this shift from export-driven growth to domestic consumption-led growth. Exports as a share of GDP have dropped to 15% from around a third of the economy in 2005, but they are still a significant proportion.
“Therefore, what needs to happen is, ultimately, we need to revive domestic demand in China, so that the exporters in China, the manufacturers no longer have to rely on selling to the US, but can sell more goods domestically,” says Neumann, who expects further announcements from the Chinese government to support this direction. However, this is a “monumental” undertaking that clearly cannot happen overnight, involving political and ideological elements, he warns.
China might also trade more with Europe, which is similarly hit by the tariffs. This sounds like a nice concept, but the key is generating sufficient demand, which calls for a comprehensive rethinking of economic models. “You need to unleash consumer spending, maybe reduce your investment, shift resources towards consumers so they can actually buy more. You have to do the same in Europe. You probably have to do that same in other Asian economies,” says Neumann, adding that there are 3 billion consumers in Asia and they are under-consuming in many measures. “And so, it is not as if it is impossible. The question is, do people feel comfortable saving less or spending more?”
Another way to look at the tariff shock, which is a silver lining of sorts, is that the changes to economic structures that have been put off will now take on more considerable urgency as governments and businesses are now compelled to think harder and be more forceful in pushing through the needed changes. “We might see accelerated reforms that unleash the true potential of Asia, which was never to dominate export markets but to unleash the domestic consumer to carry the day,” he says.
This episode will also be a pivotal moment in global economic history. Wong Kok Hoi of APS Asset Management suggests the US dollar may enter a long-term structural decline as capital inflows into the US pause or reverse amidst policy unpredictability and uncertainty.
“More and more investors could view Trump’s policies as a major departure from what was once a largely responsible economic and geopolitical superpower. If this view spreads, investors will be less willing to pay a premium for the heretofore perception that America deserves a sovereign premium,” says Wong, the firm’s founder, executive chairman and chief strategist, and a long-time China bull.
“Trump might have done China a favour, as more and more countries will view China as a more predictable and rational partner. Ironically, Trump might have upended the notion of American exceptionalism among global asset owners regarding their holdings of the greenback, US Treasuries and most importantly, US stocks. If this notion gets increasingly eroded or outright trashed, one asset class will likely emerge as the biggest winner — China A shares.”
In the same vein, Trump can continue with his flip-flops, but the rest of the world, including Asia, has been rudely jolted. “Tariffs today are not the end of the Asia growth story, nor the end of the Asian investment story, but it’s rather a new chapter,” says Neumann.
