SINGAPORE — The United States and China are at it again. The world’s two largest economies have slapped wide-ranging tariffs on each other’s imports, which will have ramifications for the rest of the world.

Economists say that it could result in lower prices of some goods in Singapore, such as beef, vacuum cleaners and flat-screen television sets. But if the trade war is protracted, it could also hurt the job market here, they warn.

On Tuesday (May 14), Trade and Industry Minister Chan Chun Sing said that the global economic situation has worsened and Singaporeans need to brace for challenges ahead.

TODAY takes a closer look at the issue.

WHAT HAPPENED BETWEEN THE US AND CHINA?

Trade tensions between the two countries heated up when an investigation, instigated by US president Donald Trump, concluded in March 2018 that China was stealing US intellectual property. The US has also accused China of using unfair trade practices such as state support for domestic enterprises to achieve a trade surplus with the US.

The US imposed tariffs on 1,300 categories of Chinese imports, including flat-screen televisions and medical devices, in March 2018. The Chinese imposed tariffs on US imports in response. The trade war between the two countries has escalated ever since.

Tariffs are a type of tax imposed on certain imports by a government — sometimes as punishment of a trading partner, as is the case here; other times to try to protect a domestic industry. The idea is to drive up the prices of the goods involved to reduce sales.

While there have been intermittent trade negotiations between the two countries, both sides failed to reach a deal in the latest rounds of talks in May.

On May 10, Mr Trump raised tariffs on US$200 billion (S$273 billion) worth of imported Chinese goods from 10 per cent to 25 per cent. These goods include telecommunications equipment, wooden furniture and computer circuit boards.

In retaliation, China has imposed tariffs of up to 25 per cent on US$60 billion (S$82 billion) worth of US imports, including goods such as batteries and spinach, which are set to take effect on June 1.

HOW DOES THIS AFFECT SINGAPORE?

Mr Song Seng Wun, an economist with CIMB Private Banking, told TODAY that US-China trade tensions have hurt Singapore’s growth, as trade out of Singapore in goods and services is about three times more than the country's economic output or gross domestic product (GDP).

This is significant because Singapore’s domestic demand is very small, such that even if taxes were to be cut to 0 per cent, the rise in domestic demand — goods and services people buy here — would not be able to compensate for a protracted slump in external demand, he added.

The effects of these tensions were visible even last year. Mr Song said: “In the first half of 2018, our economy was expanding in excess of 4 per cent. But after the trade disputes (between the US and China) escalated from July 2018 onwards, our growth slowed down to about 2 per cent in the the second half of 2018.”

In the first quarter of this year, the Singapore economy grew just 1.3 per cent, he added, attributing this to the compounding of trade tensions and the late stage of the economic growth cycle that Singapore is in.

WHAT IS THE LIKELY EFFECT ON PRICES HERE?

On the ground, Singaporeans may see a drop in the prices of some goods — and an increase in the prices of others.

“The flipside is that both the US and China will be looking for new export markets for some of the things that they produce, causing the prices of some goods here to decrease if Singapore is one of these markets,” Mr Song said.

So, flat-screen television sets and vacuum cleaners, which both countries produce and sell overseas, could well become cheaper in Singapore, as could food items such as soy, cherries and meat.

“Specific to agricultural produce, US farmers may have to find new markets quickly as these are perishable items. So imports such as soybeans, American cherries and meats such as beef, pork and poultry might become cheaper in Singapore,” Mr Seng added.

Agreeing, Ms Selena Ling, head of treasury research and strategy at OCBC bank, said that hypothetically, prices may fall if China decides to dump its exports in the markets of the Association of South-east Asian Nations (Asean) instead of selling them to the US.

However, this could vary from product to product, and prices could rise if there are shortages of certain goods within the US or China, Mr Song said.

“For example, the swine fever outbreak in China, where a lot of their pigs have to be culled, could increase China’s demand for pork imports from other countries such as Singapore, leading to a rise in the price of pork here,” Mr Song added.

If China decides to import items such as commodities from Asean instead of the US, prices may also rise, Ms Ling said.

However, the impact on inflation in Singapore is “not very clear at this juncture”, she added.

Mr Irvin Seah, senior economist with DBS bank, told TODAY that there could be some “second-order impact”, where the prices of Singaporean imports rise because the import is from the US or China, and component(s) of the import are subjected to tariffs and imported solely from the other country.

However, Mr Seah said that this effect is not likely to be significant and he does not think that Singaporeans will even feel it.

HOW BAD CAN IT GET?

Despite the slowdown in growth owing to US-China trade tensions, the Singapore labour market continues to stay “relatively resilient” because of labour scarcity here, Mr Song said.

This will not continue in the worst-case scenario, where the trade war expands to include other major trading countries countries, such as Japan and the nations of the European Union, and becomes a protracted conflict — leading to increased recession risks, and possibly an early recession.

“If business, turnover, revenue growth and outlook are not going to improve soon, we may find businesses cutting back on their demand for labour from the second half of 2019 or early 2020,” he said.

When the economy does not continue to generate gainful employment, only those with a job and job security will be able to benefit from falling prices, while those without job security will likely be more selective in their spending, he added.

But whether recession risks will indeed rise remains to be seen, as it depends on factors such as how long the trade negotiations between US and China will take and whether any party will give in, Mr Song said.

Agreeing, Mr Seah highlighted that dampened employment prospects would be the most direct impact that Singaporeans may potentially face, as growth slows and companies turn cautious amid the trade war.

“Hiring may slow, with dimmer employment prospects for workers. And if it gets worse, companies may consider cutting headcounts,” he added.

WHAT CAN THE S'PORE GOVERNMENT DO?

Mr Seah said that there is “nothing” that the Singapore Government can do about the trade war as it is a “tussle between giants”.

Instead, the Government can focus on the longer-term goals of restructuring Singapore’s economy and building up the capabilities of the economy to counter cyclical downturns, he said.

Ms Ling noted that policymakers also have "sufficient ammunition to implement fiscal stimulus given the substantial accumulated surpluses" if need be and if the slowdown is more pronounced. 

Echoing her sentiments, Mr Song said that the Government may have to use a supplementary budget, on top of the annual budget, to help businesses tide over an unexpected worsening in the external growth environment.

While there may also be the possibility of tax cuts from the second half of this year, domestic demand in Singapore’s economy is too small to do very much, he added.

“For the medium term, efforts to continue to build economic connectivity, cooperation and integration, as well as free-trade agreements with trading partners, including Asean, remain of paramount importance,” Ms Ling said.