Reciprocal tariffs manageable for Singapore but SEA faces bigger risk

Medical apparatus, precision engineering equipment, and ships and boats will be most affected.

The effect of the US’ reciprocal tariffs in Singapore should be “manageable” but faces slower economic growth prospects on impact in the wider Asian region.

Exports to the US account for roughly 8%-9% of Singapore’s GDP, a significant but modest slice of the country’s economy, noted Stephanie Leung, chief investment officer at investment platform StashAway. Direct impact of tariffs on Singapore should therefore be manageable.

Exports likely to be most affected are “machinery”, including medical apparatus & precision engineering equipment, as well as “ships, boats & other floating structures,” according to a separate report by CGS International.

The bigger risk lies in the indirect impact arising from tariffs on the Asia region, StashAway’s Leung said.

“Major regional trading partners face steeper tariffs – China at 54% and Malaysia at 24% – and if neighbouring countries see sharper downturns, Singapore might feel a second-hand chill,” she said.

Despite this, Singapore still has some domestic growth engines, according to a separate report by Nomura’s Global Research Team. This should provide some offset such as fiscal easing and the sustained investment upcycle, it said.

Nomura has lowered Singapore’s GDP growth forecast to 2.3% from 2.8%.

“Still, we believe the government has ample firepower that it can tap to provide additional fiscal support measures in an election year, and indeed has an expansionary stance in the FY25 budget,” it added.

The tariffs’ ultimate impact hinges more on how negotiations unfold and what concessions emerge, according to Leung.

In a statement on April 3, Minister for Trade and Industry Gan Kim Young said that Singapore will engage the US through diplomatic channels.

“What we are going to do is that we will reach out and engage our US counterparts and better understand their concerns, see how we can work together constructively to address some of these concerns, so that we have a long-lasting partnership,” Young said.

Higher costs
Costs are expected to rise for businesses in Singapore and Malaysia, said Yogesh Sangle, global head of Instarem, a money transfer business. Small and medium enterprises (SMEs) will face tough decisions to stay profitable.

“Sectors like manufacturing or those reliant on export-focused supply chains are likely to feel the knock-on effects most and will need to pay closer attention to every cost centre,” Sangle said.

Rather than absorbing these costs or passing them on to customers, SMEs should focus on finding efficiencies elsewhere, he added. “This could include renegotiating supplier contracts, consolidating software and service subscriptions, or reducing overheads through smarter automation and outsourcing.”

Trade shifts
Asia as a whole is expected to be one of the most impacted by the tariffs, according to several analysts.

The highest tariff rates have been announced for Southeast Asia (32-49% for some), notably Cambodia, Vietnam and Thailand, suggesting closing the third country circumvention loophole has played a role, Nomura’s Global Market Research team said in a report.

The higher reciprocal tariffs in Southeast Asia eliminates Vietnam’s and Cambodia’s advantage on the US-China trade tensions.

“During the last eight years, Southeast Asian countries such as Vietnam have benefited from US-China trade tensions. Higher reciprocal tariffs on Vietnam and Cambodia, if they are sustained, will eliminate this advantage,” Nomura said.

“Instead, India, which faces a 27% reciprocal tariff and is trying to negotiate this down, stands to benefit from the next round of supply chain shifts, helped also by its strategic alliance with the US. We also see Malaysia as a potential beneficiary,” it added.

Singapore is amongst countries who may not directly be affected by higher reciprocal tariffs, but will be indirectly affected because of their value added in other countries’ exports to the US.