SINGAPORE — The world is at a "turning point", with question marks over whether there will be "new rules and norms for international co-operation" or if there will be "prolonged tension and suspicion, mutual rivalries and hostile blocs", said Prime Minister Lee Hsien Loong on Sunday (Aug 19).

Describing the current state of global affairs as an "unprecedented situation", Mr Lee noted that former United States Secretary of State Henry Kissinger had recently said in an interview that "we are in a very, very grave period for the world".

"We cannot be confident that the major powers will continue to work with one another, and that the existing international system which has held the world together for so long will still hold," said Mr Lee at the start of the English portion of his National Day Rally, pointing to the frayed trade relations between the United States and its longtime ally the European Union (EU) as well as the trade war between the US and China.

Previously a champion of free trade and the free movement of people, Americans are now questioning the benefits of this approach, as they feel being taken advantage of by other countries, noted Mr Lee.

That has led the US to make "rebalancing trade" its top priority, as it moved to unilaterally imposed tariffs on imports from the EU, Canada, Mexico and in particular China, the world's second largest economy seen as a major threat by President Donald Trump's administration.

However, China and the other countries have retaliated by imposing their own tariffs on American-made goods such as soybeans, bourbons, blue jeans and even vehicles including Harley-Davidson motorcycles.

"They want to inflict maximum pain on Trump's supporters who grow or make these things, hoping the US to back off," said Mr Lee.

But the tit-for-tat moves, he added, affect business confidence, undermine multilateral trading system and threaten global prosperity.

"There are no winners in a trade war. Small and open economies are especially vulnerable and Singapore will suffer collateral damage."

The worsening trade relations have also placed world peace and stability at risk, said Mr Lee, as he noted that they have "eroded trust, and sharpened tensions and rivalries between countries".

Though they have long been friends, the US and EU are now arguing fiercely over trade and defence spending, Mr Lee noted.

While the US and China have the most important bilateral relationship in the world and need to work closely on global issues such as climate change, the Trump administration has labelled China a "strategic competitor", and Chinese President Xi Jinping has in turned warned that Beijing will punch back and will not "turn the other cheek".

The US and China are now locked in a trade standoff as they slapped tariffs on billions of dollars of each other's goods.

"We are therefore at a turning point," said Mr Lee.

"We hope all countries will act with restraint and wisdom, overcome the current challenges, and find a new way to move forward together."

Turning to the Korean peninsula, Mr Lee expressed hope that the historic Donald Trump-Kim Jong-un Summit held in Singapore in June would help to "defuse tensions".

Organising the summit, which saw Mr Trump become the first American leader to meet his North Korean counterpart, was a "daunting task", but Singapore "rose to the challenge", said Mr Lee.

The Republic was chosen as the host because both the US and North Korea considered it a "serious and reliable partner", said Mr Lee.

"We are friendly and straight with all parties. And both trusted us to have the infrastructure and capability to provide a safe and secure environment," he added.