It’s been over a week since former U.S. President Donald Trump made his surprise “Liberation Day” announcement on 2 April. Many are calling this move the symbolic end of the global free trade era, ironically led by the very country that once championed it.
While Trump has a history of using tariffs as a policy tool (including during his first term from 2017 to 2021), the scale and aggressiveness of the new measures introduced this month have sent shockwaves through global markets. Stock prices have plunged, recovered briefly, and tumbled again in a volatile cycle of uncertainty.
Even Singapore—a country that has always managed its international relationships carefully, avoiding unnecessary friction in bilateral ties—is not immune to the fallout. Prime Minister Lawrence Wong acknowledged the shifting landscape in a speech, stating that “the era of rules-based globalisation and free trade is over.”
Read Also: 5 Takeaways From PM Lawrence Wong’s Ministerial Statement About The Trump Tariffs
Many may wonder why Donald Trump’s latest round of tariffs could have such damaging consequences for the global economy. There’s no shortage of experts offering in-depth analysis of the broader macroeconomic implications.
To illustrate why these tariffs are likely a lose-lose proposition, we’ll look at a familiar example closer to home: the economic relationship between Singapore and Johor.
Why Free Trade Works: A Hypothetical Look at Singapore and Johor
Many of us who are based in Singapore like to head to Johor for cheaper goods and services.
To be clear, Johor isn’t necessarily a cheap place to live. As our writer based in Malaysia has pointed out, the cost of living there in Johor is relatively high compared to the average wages locals earn. However, for Singaporeans and Malaysians who work in Singapore but live in Johor, converting Singapore Dollars (SGD) to Malaysian Ringgit (MYR) means enjoying significantly lower prices than what they would pay in Singapore for similar goods and services.
Now, imagine if either government (it doesn’t really matter which) decides this situation is “unfair” and wants to stop it. Perhaps the Singapore government feels that Singaporeans shopping in Johor hurt Singapore-based retailers. Or the Malaysian government believes Singaporeans are taking advantage of the lower prices.
So, a tariff is introduced: anyone who earns an income in Singapore but buys goods in Johor must now pay a 100% tax on their purchases, effectively doubling the cost. For the sake of discussion, let’s assume this policy can be implemented, much like how Malaysia already restricts the sale of RON95 petrol to foreign vehicles.
A Lose-Lose Proposition
For starters, Singaporeans and Malaysians who work in Singapore but live in Johor would immediately cut back on their spending across the border. It’s a logical response. If goods in Johor become just as expensive as those in Singapore due to the tariff, there’s little reason to shop there anymore (unless it’s really good). Consumers would now face a higher cost of living, while their wages remain the same.
On the other hand, businesses in Johor that previously benefited from the spending power of Singapore-based workers would also take a hit. With demand dropping sharply, many would have to rely solely on local consumers, a segment that may not have sufficient spending power to sustain, let alone grow, these businesses. Lower revenues could lead to job losses and wage cuts for workers in Johor, so the people in Johor also suffer.
If both consumers and businesses are worse off, then who benefits? The short answer is likely no one, except perhaps some Singapore-based retailers who might see increased demand for their goods, not because they produce higher-quality products, but because protectionist policies are introduced.
This contradicts the principle of growing a business through improved productivity, competitiveness and innovation. It rewards companies for being shielded from competition instead of encouraging companies to improve. In the long run, this can lead to stagnation rather than progress.
Of course, the scenario above is purely hypothetical. Singapore and Malaysia will not implement such policies simply because they don’t make economic sense. In fact, Singapore and Malaysia are creating a Johor-Singapore Special Economic Zone (JS-SEZ) to further reduce the friction for trade between Singapore and Johor, enhance the flow of goods and people, and improve the ease of doing business.
Why Trump’s Tariffs Is A Lose-Lose for the Global Economy
Though simplified, you can see the parallel between our hypothetical scenario and Trump’s tariffs.
Imposing tariffs on goods imported into the U.S. raises costs for American businesses and consumers. For finished goods (those ready for sale), this just means U.S. consumers end up paying more for the same products without any increase in wages. For unfinished goods, such as microchips or steel used in manufacturing, the tariffs raise production costs, making U.S.-made products more expensive and less competitive domestically and internationally.
Exporters from other countries that are hit by Trump’s tariffs will also suffer. Like Johor businesses facing sudden tariffs in our earlier example, foreign producers will see weaker demand from the U.S., which is still the world’s largest economy. As demand for goods from the U.S. declines, countries can try to pivot to other markets. However, overall demand will likely still fall, leading to lower revenues and job losses.
And this doesn’t even consider the effect of retaliatory tariffs that other countries may impose. For example, China has already introduced retaliatory tariffs of up to 125% on U.S. goods. This creates a double blow for American businesses, not only are they dealing with higher production costs due to tariffs on imported inputs, but they are also losing competitiveness in key export markets that are now slapping additional tariffs on their products. In such a scenario, U.S. companies may find themselves squeezed on both ends: paying more to produce and struggling to sell.
This is why many economists and policymakers view Trump’s tariffs as fundamentally illogical, as even the U.S. is unlikely to benefit from them. It’s one thing to pursue protectionist policies that give your country an advantage at the expense of others. But it’s another altogether when those same policies hurt your businesses, workers and consumers without delivering any real long-term gains.
Read Also: Trump Tariffs: 4 Sectors With The Biggest Losses On The STI
Photo Credit: iStock/mikel soria arbilla
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