Singapore's economic outlook brightens on US-China de-escalation, but tariff uncertainty remains
SINGAPORE - The outlook for Singapore's export-driven economy has brightened as the world's two largest economies stepped back from a tariff war that could collapse trade between them and trigger a global recession, analysts said.
The United States and China agreed on May 12 to suspend their triple-digit reciprocal tariffs for 90 days for much lower levies while negotiations continue for a broader and sustainable trade deal.
The three-month pause will see tariffs on US exports to China cut to 10 per cent from 125 per cent, while levies on Chinese exports will be reduced to 30 per cent from 145 per cent.
However, some analysts warned that the excitement over the deal could wane in coming days as realisation sets in that 90 days may prove too short a period to arrive at a comprehensive trade deal between two countries that consider each other as strategic competitors and have been locked in a trade war since 2017.
Still, for investors, the cool-down period represents a reprieve from a scenario where US consumers suffer massive price hikes and empty store shelves, while China endures loss of its biggest export market and a drop in manufacturing output.
'The US-China trade deal is a significant de-escalation and allows trade to resume from what was essentially a deep freeze,' said Mr Chua Hak Bin, regional co-head of macro research at Maybank.
He said while a 30 per cent tariff rate on Chinese exports is by no means low - and remains higher than the 10 per cent tariffs faced by most other countries, including Singapore - it will be more manageable than the 145 per cent rate.
Mr Adam Pickett, who heads Citibank's global macroeconomic strategy, said the reduction in US tariffs on China represents an effective tariff rate change from 25 per cent to 12 per cent.
The effective tariff rate considers both the nominal tariff on a final imported product and any tariffs on imported inputs used in making that product.
'This is a gamechanger for tactical risk,' he said, referring to assets including currencies, credit, stocks and commodities.
US dollar surged against its major peers after weeks of persistent decline. The rally saw the Singapore currency ease against the greenback.
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