Lee Hsien Loong on Trump's tariffs: "Biggest shock the global trading system has ever faced"

Summary

Singapore's Prime Minister Lee Hsien Loong discusses the far-reaching impact of U.S. President Donald Trump's tariffs, seen as the biggest shock to the global trading system. The tariffs aim to equalize America's trade deficit, borrowing an approach Trump has believed in for years. After an initial postponement, tariffs on various U.S. trading partners are being implemented, significantly affecting U.S.-China relations and global trade dynamics. Lee highlights the challenges this protectionist stance presents, particularly for smaller nations like Singapore which rely heavily on the international trading system. The unilateral approach disrupts the established multilateral trade agreements, potentially leading to widespread economic repercussions not only for direct participants in the tariff wars but also for global markets.

Highlights

• Lee Hsien Loong describes the tariffs as the biggest shock to the trading system 🚨
• The tariffs are seen as part of Trump's longstanding belief in protectionism 🛡️
• U.S.-China's trade tensions escalate, with tariffs going back and forth like a tennis match 🎾
• Tariffs could cause a ripple effect, impacting global trade and economies far beyond just the U.S. and China 🌊
• Smaller nations might face difficulties due to reduced influence in one-on-one trade negotiations 🤝

Key Takeaways

• Trump's tariffs are a significant shock to global trade 🌎
• The approach challenges multilateral trade agreements ⚖️
• U.S.-China relations are strained due to increased tariffs 🇺🇸🇨🇳
• Smaller countries like Singapore may suffer from lack of bargaining power 🌐
• Tariff wars could lead to broader economic disruptions and slow growth 📉

Overview

In a recent discourse, Singapore's Prime Minister, Lee Hsien Loong, examined the serious implications of President Trump's enforcement of tariffs, which aim to tackle America's trade imbalances. These actions mark a considerable departure from previous U.S. trade policies, which once upheld the principles of multilateralism, aiming for international cooperation and mutual benefits. Lee reiterated that the global shockwaves from these tariffs impact not only large economic powers such as China but also smaller trade-dependent countries.

Lee pointed out that the tariffs have prompted a significant strain in U.S.-China relations, sparking back-and-forth trade punches that could spiral into a more profound economic rift. America's move towards reciprocal tariffs essentially dismantles the previous 'most favored nation' policy, leading to inequitable treatment of trade partners. This approach proves particularly disadvantageous for smaller economies, which benefit from established international trade rules that promote a level playing field.

The broader implications of these tariffs suggest potential slowdowns in economic growth and disruptions in global supply chains. As trade barriers rise and tensions escalate, countries across the globe face increased uncertainty and the possibility of a domino effect on international economic stability. With America's departure from multilateral agreements, many are left to question the future of global trade partnerships amid these protectionist trends.

Chapters

• 00:00 - 00:30: Introduction to Trump's Tariffs The chapter titled 'Introduction to Trump's Tariffs' discusses Trump's long-standing belief in the use of tariffs as a tool to address America's trade deficit. It highlights that Trump's decision to implement tariffs was not unexpected, given his frequent mentions of this strategy during his campaign. The chapter also notes a significant event referred to as Liberation Day, occurring on April 2nd, which was marked by the commencement of these tariffs, aligning with Trump's longstanding trade policy convictions.
• 00:30 - 01:30: Initial Reactions and Economic Impact The chapter titled "Initial Reactions and Economic Impact" discusses a significant event during a presidency approximately eight years prior, where tariffs were imposed, leading to unexpected and drastic economic changes. This occasion is referred to as 'liberation day' and is considered a major shock.
• 01:30 - 02:30: Global Trade System Disruption The chapter discusses a significant disruption in the global trading system, identified as one of the most severe challenges it has faced. This disruption has led to a plunge in stock markets worldwide, with bond markets also impacted, particularly in America where interest rates rose and bond prices fell.
• 04:00 - 07:00: US-China Trade War Begins The chapter titled "US-China Trade War Begins" outlines the initiation of tariffs and the inception of the trade war between the United States and China. It mentions a temporary reprieve and how tariffs at a rate of 10% have been imposed on all countries, indicating that this is non-negotiable and has already been enforced. The postponement is for 90 days, which may seem like a relief, but the presence of this looming decision suggests continuing tension during this period.
• 07:00 - 10:00: Impact on US-China Relations This chapter discusses the uncertain nature of US-China relations, particularly concerning trade. The 90-day period mentioned likely refers to a negotiating timeline or trade deadline, creating uncertainty in the economic markets. The US administration's goals are highlighted, focusing on eliminating the trade deficit with China and revitalizing domestic manufacturing to bring jobs back to the United States. This chapter highlights the tension and strategic goals in play between the two nations.
• 10:00 - 15:00: Challenges in Bilateral Trade The chapter discusses the challenges faced in bilateral trade agreements. It highlights the approach of balancing trade relationships on a country-by-country basis, with a focus on countries like China, Japan, Canada, Mexico, and Vietnam. The discussion points out that the United States does not prioritize addressing trade with countries like Singapore due to having a trade surplus with them, contrasting the approach taken with countries where there is a trade deficit.
• 15:00 - 20:00: Historical Context and Multilateral Trade The chapter titled 'Historical Context and Multilateral Trade' discusses the mindset and fundamental beliefs driving certain political authorities, particularly under Trump's administration. It highlights that this approach is deeply ingrained in their pursuit of objectives, despite potential difficulties. The persistence in these goals reflects their unwavering commitment to achieving their objectives, indicating continued efforts to push for these changes.
• 20:00 - 25:00: MFN and Global Trade Implications The chapter discusses the implications of moves made by the Americans in global trade, particularly in relation to the Most Favored Nation (MFN) status. Despite the steps taken, results have yet to be delivered, and the speaker anticipates further actions being necessary. These actions will have significant consequences on a global scale, impacting many countries, including Singapore. The chapter highlights the ongoing and future uncertainties in the global trade environment as a result of these measures.
• 25:00 - 30:00: US Tariff Strategy and Global Reactions The chapter titled 'US Tariff Strategy and Global Reactions' delves into the international trade dynamics following the initiation of a new tariff strategy by the United States. It highlights the pivotal change this strategy brought to the global trade landscape since the new administration took office. The transcript focuses on the critical issue of how this tariff package has strained relations between the US and China, unlike the postponement of tariffs against other countries, marking a significant phase in global economic strategies.
• 30:00 - 35:00: Long-term Implications and Industry Disruptions The chapter discusses the ongoing tariff war between the United States and China, highlighting the escalating trade tensions. It details the sequence of events where America initially imposed a 20% tariff on China, prompting China to retaliate with tariffs on selected products. This has led to a back-and-forth exchange, with the US imposing further levies amounting to 145% on Chinese goods. The Chinese have responded in kind, creating a cycle of retaliatory measures between the two countries. The chapter likely explores the long-term implications of these trade disruptions on global industry.

Lee Hsien Loong on Trump's tariffs: "Biggest shock the global trading system has ever faced" Transcription

• 00:00 - 00:30 when Liberation Day came not the 1st of May but the 2nd of April that was not a complete surprise to us because Trump had signaled very clearly and over many years that he wanted to do tariffs and he wanted to equalize America's trade deficit he believes in tariffs since he was a young man he had said during this campaign repeatedly that he comes in he's going to put tariffs on everybody's
• 00:30 - 01:00 is the most beautiful word in the vocabulary and the first time he was president 8 n years ago he had imposed some tariffs so that he was going to do something was not a surprise but even then what happened in the liberation day was more drastic than expected in fact it is the biggest shock
• 01:00 - 01:30 which the global trading system has ever faced the stock markets plunged i think even the bond markets moved in America interest rates went up bond prices came down and so for now there's a 90-day postponement on what Trump called the reciprocal tariffs and he's put in some exclusions for Chinese smartphones laptops chips and so
• 01:30 - 02:00 for the time being there's a reprieve but tariffs on all the countries 10% that's non-negotiable and that's in force and happened already so postponing 90 days sounds like you got 90 days of reprieve but actually during these 90 days is not just the tariffs which have been postponed because with this thing hanging over
• 02:00 - 02:30 you waiting not sure whether it's going to come or not come everything else goes into limbo because what happens after 90 days you know we know that what the US administration wants is they want to eliminate the US trade deficit they want to rebuild manufacturing in the US bring the jobs
• 02:30 - 03:00 back and they want to do this not only across the board to balance with the whole world but they want to do this country by country with China with Japan with Canada with Mexico with Vietnam not with Singapore why because Singapore has a surplus america has a surplus with Singapore that's all right if America had a deficit with Singapore we would be there high on the list too
• 03:00 - 03:30 it's it's the way they are thinking about their problems so these this is a fundamental belief a very deep motivation trump believes it his team believes it many of them and these are goals which are going to be very difficult to achieve so we must expect him to continue to pursue this objective and when he makes moves and
• 03:30 - 04:00 the moves have not delivered results I think the result the the conclusion will not be to leave off but will be to continue to do more moves and to take further strong measures so we can expect to see more further steps taken by the Americans over time and that's going to have very major consequences for many countries including Singapore so we are here now steps taken steps yet to come more uncertainties to come we are not where
• 04:00 - 04:30 we were before this new administration took office or before the 2nd of April the world is in a new phase one of the biggest problems in trade and arising from this tariff package is the damage to USChina relations america has postponed the tariffs against other countries but not
• 04:30 - 05:00 postponed against China the tariff war between America and China has already begun first round America put 20% on china responded with selected products then America came back again china went back and forth now US levies on China 145% and the Chinese you do this to me I do this to you the Chinese do to US
• 05:00 - 05:30 imports US sales to the to China 125% so it's reached the level where the number doesn't matter anymore it can be 100 it can be 200 it can be 300 how much business is going to be done probably almost none because it's impossible and it doesn't stop with such tariff items it goes beyond tariffs so for example China has
• 05:30 - 06:00 restricted rare earth exports and what are rare earths they are a raw material which you need to make all kinds of electronics equipment and China is a major exporter if you don't get it from China uh it's very difficult to get from other places so China says "You do this to me?" Well I will respond i will restrict rare earth exports and you don't want to you don't want me to sell you goods okay i will
• 06:00 - 06:30 not buy your goods is one thing but I will also restrict imports of Hollywood films films are not goods because films will just stream over you can watch its services but never mind i will restrict that i won't watch Disney i will watch Ner too so effectively the bilateral trade is going to get killed and why because the
• 06:30 - 07:00 businesses just can't do it if the tariff is 5% 10% maybe even 15% okay I'm selling to you let's chong you take five I take 10 we squeeze our belts a little bit my profit a bit less your cost a bit higher okay let's carry on and try to stay calm and carry on but when it is 150 200% and you don't know what's going to happen tomorrow or day after then you can't stay calm and carry
• 07:00 - 07:30 on you must stay calm and then he may have to decide to go into a different business or to go out of business and that means entire businesses and trade flows are going to stop and it won't end with trade because if I'm quarreling with you on such a serious matter it's very difficult for me to cooperate with you on other equally serious things so for example the Americans want China to cooperate with them on restricting fentinel
• 07:30 - 08:00 because the the materials to make fentinel come from China somehow they go to Mexico and other places they become made into fentinel then smuggled into the US and America wants China to stop making the precursor chemicals but China says well I why should I try very hard so this is going to escalate and there'll be far-reaching consequences for USChina
• 08:00 - 08:30 relations this is not a new problem actually it's not a problem which started with this president it's a problem which has been growing since quite a number of years the attitudes changed when Obama became president over time they harden so it's Democrats as well as Republicans we say that the Americans are divided but on China the Americans are united strong consensus that China is
• 08:30 - 09:00 a facing challenge and they have to take China very seriously and actually they are trying very hard to stay ahead of China and to keep China prevent China from overtaking them at the same time the Chinese say "I'm growing i'm developing i want to take my rightful place in the world who's going to stop me?" So this is a fundamental contradiction the Americans say "I want to make sure that you you
• 09:00 - 09:30 don't overtake me." The Chinese say "I have a right to develop." So we can talk about win-win but when you cast it like that there's a fundamental contradiction and it's not going to be easily resolved so the latest trade war has worsened it and is going to be a serious problem for the two countries and also for the world
• 09:30 - 10:00 so what do we do about it some people say don't get excited don't overblow the issue we've weathered bigger storms before we haven't failed so we should take the events these events in our own stride and it's true we shouldn't get excited we should take it in our own stride but we do need to be concerned and to understand what is
• 10:00 - 10:30 happening and what this means for us because this time something important is different we've gone through many crisis before over the years i mean we've gone through global financial crisis before that Asian financial crisis we had SARS most recently we have had COVID and from every now and again something happens in the world we are carried along and we
• 10:30 - 11:00 have to batten down our hashes and see it through and every time we have succeeded so we have confidence but one important thing which you must understand is that every time that happened we had one big two big things going in our favor one within Singapore we were doing the right thing we could get united we could get our act together we could respond with the right policies even painful
• 11:00 - 11:30 ones and we could get the system get ourselves sorted out but two every time we got into trouble last time Singapore was part of a working global economic system trading system and that trading system promoted free flow of trade free flow of investments uh encourage MNC's to look for places to
• 11:30 - 12:00 do business we were efficient we were doing well we came out from trouble we plugged back in we could resume growing resume developing resume succeeding so every time you run into trouble you come out you plug in you grow again next time trouble you come out the system is still there it's a global financial system the M the WTO system and that was what helped us what was it
• 12:00 - 12:30 about that system which helped us it gave countries big and small a level playing field so whether you're a big country or a small country under the WTO system the rules are the same your your access is the same what do I mean let's say between countries we trade right sometimes you have tariffs
• 12:30 - 13:00 sometimes you have other restrictions you're allowed to do that but you may not discriminate between your partners big ones and small ones so if the let's say take an example if the EU raises tariffs on cars from Japan you want to protect European cars you raise tariffs on let's say Nissan or Toyota then you must charge the same
• 13:00 - 13:30 tariff on cars from every other country Chinese cars Korean cars Indian cars American cars you have to treat them the If Singapore had cars to export Singapore would also be charged the same tariff on the other hand if you give a concession to a country for example if Australia says I allow rice from India to be sold duty-free then they have to do the same
• 13:30 - 14:00 for rice from all other countries Japanese rice Chinese rice Vietnamese rice American rice everybody has to come in also duty-free it has to be a level playing field you can protect yourself but you can't discriminate between your partners and that is called MFN most favored nation it sounds if you're MFN that you got some special favor most
• 14:00 - 14:30 favored right but actually most favored just means equal favor means you don't get more than anybody else and you don't get less than anybody else and it's a level playing field for countries big and small but what it means is that for small countries who have very little bargaining power because the rules are like that so we enjoy the same market access which big countries enjoy and we benefit from the bargaining power of
• 14:30 - 15:00 bigger countries and therefore when therefore we can get access and therefore we can get investments and therefore we can get jobs so MFN is critical to Singapore what is different this time is that the US doesn't want MFN they want to dismantle the system they want to replace MFN with
• 15:00 - 15:30 reciprocal tariffs meaning not I won't treat everybody equally i want to treat each p each partner one on one i deal with you you deal with me what do you give me i give you at least in principle when you bargain of course what do you give me what I give you I would like you to give me a little bit more but deal oneonone and therefore exploit America's bargaining power because they are big
• 15:30 - 16:00 right one quarter of the world GDP 17th of total goods trade in the world why why why treat everybody equally they don't have the cards to borrow some famous words why not we treat this oneonone like arm wrestling let's see who's got more biceps who's got a stronger arm and we'll see who's stronger we'll we'll get more that
• 16:00 - 16:30 way so it's a fundamentally different kind of world which the US is looking for and pushing for and the approach is not winwin but win lose in other words the US wants to do well for themselves they really don't mind whether you the other countries do well for themselves or not and President
• 16:30 - 17:00 Trump recently is on record saying if we can make a really fair deal and a good deal for the United States not a good deal for the others this is America first it's now America first so this has very major implications for Singapore very major implications for the world what does it mean for the world
• 17:00 - 17:30 firstly you're going to have different rules for different countries small countries will suffer because we have no bargaining power but even big countries will not do well because there's going to be a lot of confusion a lot of uncertainties a lot of differences in the rules and far fewer opportunities to trade to invest to do business together secondly the tariffs whether they're equal or whether they are unequal and in this case they will
• 17:30 - 18:00 become unequal will choke off trade will raise costs and will dampen growth in 2000 at the beginning of the of the millennium the US tariffs were on average about 1% so basically if you can sell to the US you can your goods can enter the US almost duty-free 1% there are some exceptions like trucks they charge a lot other things like sugar
• 18:00 - 18:30 where they are restricted they are sensitive they got farmers to protect or ethanol but across the board 1% it's a they were the anchor of the global trading system now already they are at about 10% at a level which has not been there for 80 years it's very high it's higher than any other developed country
• 18:30 - 19:00 and if 90 days time the rest of the tariffs come in reciprocal tariffs and they go to 30 40 sometimes nearly 50% then the US tariffs will be even higher than they were before the war during the great depression when the US pushed the tariffs right up and that may worsen the depression for the US and for the world furthermore this is not the end of the
• 19:00 - 19:30 story because tariffs on the the B bundle so far has not counted two products farmer and semiconductors and you farmer and semiconductors may have been feeling happy for the short while but the America has made very clear that coming soon aat and that will potentially hit Singapore quite hard because farmers and
• 19:30 - 20:00 semiconductors are a significant part of our economy so that's from the immediate impact of the American tariffs but when other countries retaliate then you must expect back and forth tit for tat it's happened with China it will happen with other countries then there will be a downward spiral and the impact will be even worse canada has already retaliated the EU has also
• 20:00 - 20:30 retaliated quite carefully because they are a bit fearful they've done Harley-Davidson because that's one of the iconic American products and built in I think in somewhere in Georgia not sure in the southeast where uh it's Trump country but they haven't put high tariffs on whiskey
• 20:30 - 21:00 borbin why because the Americans say you do borbin I'm going to hit French wine German wine champagne so both sides have held off from now for now they can drink to that but that's a small item as the quarrel goes on it will go bigger and the impact will be worse and the Chinese side is gone right to the end and with
• 21:00 - 21:30 other countries you can head in that direction too and that will do a lot of harm fourthly when you have tariffs and we say well that's going to dampen growth and things are going to slow down and there'll be fewer upsides it's not just dampening growth is going to be very disruptive if dampened growth means volumes go down right profits go down maybe bonuses go down overtime is less
• 21:30 - 22:00 okay well I tightened my belts i still got my job most of us and maybe over time uh I can go and find another job but if the supply chain is disrupted if you get hit with 100% tariffs companies in China are making Christmas trees for America for Christmas 150% tariff christmas is not going to come if you got such a tariff on pharmaceuticals or semiconductors in
• 22:00 - 22:30 Singapore are we going to have Christmas or not so what it means is that industries can be disrupted business can be totally turned upside down you may have the whole business model suddenly disappear and not just not hiring more people but you may find yourself all of a sudden with a lot of surplus workers wondering how to look after them and that can very quickly lead to
• 22:30 - 23:00 recessions recession in the US itself and impact elsewhere too so this is going to be a burden on businesses on consumers on the global economy fifthly with all these new tariffs this is something which is going to last a very long time it's not going
• 23:00 - 23:30 to go away soon because once you put in a tariff once you protect your market it's very difficult to take it away people get used to it some company may invest you you put in a tariff you you say come and invest in America so I invest in America it's really not competitive you want to build Christmas trees in the US is very expensive where to find workers but after you have got the
• 23:30 - 24:00 tariff and after the Christmas tree factory factory has come up then you want to undo it the factory says I'm going to die please help me so you can't undo do it anymore it is there it's a reality and furthermore if you undo it then the the the party in opposition will say "But you see the Chinese have their tariffs still on why why am I disarming myself you have to
• 24:00 - 24:30 negotiate with them." further long process to go from where the Americans were before the war when they had high tariffs to where they were by 2000 when the tariffs were 1% nearly zero that was a nearly 80year business process gradually bringing things down so now if the tariffs go up they stay up for a while if you want to bring them back
• 24:30 - 25:00 down I think that's going to be a long process it's not going to disappear so that's going to be a long