The latest escalation came this month when Washington threatened to add an additional 10 per cent levy on US$300 billion (S$415 billion) worth of Chinese imports on Sept 1 before backing off shortly after.
Last Tuesday, the US said it would delay duties on mobile phones, laptops and various other consumer goods to Dec 15, potentially softening their impact on Christmas sales. The row is also partly behind Singapore’s move to slash its full-year growth projections. So what does a long-drawn trade conflict mean for consumers here?
Higher prices for some items, lower for others
A protracted trade fight could lower the prices of some items if the world’s two largest economies look to new markets for their goods or services, said CIMB Private Banking economist Song Seng Wun. With tariffs weighing on trade between them, the US and China could decide to sell more to other markets instead, including to Singapore, pushing prices down.
The affected goods could include perishable agriculture produce such as US berries and soya beans, which are expected to see surpluses hitting record highs this year, following a fall in exports to China amid the trade war.
Ms Selena Ling, head of treasury research and strategy at OCBC Bank, said that if China decided to import commodities from Southeast Asia instead of the US, for example, prices here could also rise from the increased demand. While prices could increase because an imported product from the US or China may have components that have had tariffs imposed on them, Mr Song said firms will likely have to absorb the added cost in order to sell their products here.
Slower hiring conditions
Lower trade volumes and dampened demand from the US and China could hit companies supplying these markets. A decline in sales could force firms to embark on cost-cutting measures. Some companies in the semiconductor industry, for example, have been looking into layoffs while others have frozen headcounts. Many are still recruiting, but mainly to fill critical vacancies.
While the manufacturing sector has been the worst hit in Singapore, analysts warn of a fallout that could hit the overall labour market. DBS senior economist Irvin Seah said second-quarter data out last week showed that the services cluster, “a traditionally stable engine” for the economy, was waning.
Poor underlying sentiment and a slowdown in business activity have likely taken a toll on the sector, and could eventually impact the employment market.
Cheaper cost of funding
Interest rates across the world have been coming down in the wake of slower growth due to the fallout from the trade war, said Mr Song. “If you are looking to expand, because you have a product that is still in demand, it becomes easier to borrow to fund this expansion,” he added.
The US Federal Reserve lowered its benchmark interest rate last month, with officials citing the growing trade tensions as a risk to the economy. In the past weeks, the Reserve Bank of New Zealand and the central bank of the Philippines also cut interest rates, in New Zealand’s case by more than what was expected. Mr Song said capital flows tend to move to markets where interest rates are higher, and a Fed rate cut could lead to more capital coming to places like Singapore.
Uncertainty in stock market
A protracted trade war is likely to continue triggering stock market turmoil, particularly when the conflict escalates. All three major stock indexes in the US suffered big falls on Aug 5, shortly after President Donald Trump announced the latest 10 per cent tariffs.
While US stocks and Asian markets bounced back after news of the delay, which affects about half of the US$300 billion list, they have not clawed back the sizeable losses seen in recent months. Reuters reported that broad market sentiment remains fragile, given that the trade war is far from resolved.
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