Hard to make the case for new US global tariffs to apply to Singapore: Ex-US envoy

The US Treasury has sometimes questioned this approach.

In the event that Section 122 is eventually struck down by courts, problems may remain.

For instance, the US could double up on sectoral tariffs. “Such tariffs on semiconductors and pharmaceuticals would hurt Singapore,” Mr Bhaskaran said, adding that there is little likelihood of a return to the FTA days of zero duties, given the current political trends in the US.

Mr Lavin, the former US ambassador to Singapore, is now a senior fellow at the Hoover Institution, and said a court victory may not be very meaningful.

“Even if the courts disallow it, the tariff will be intact for a number of months and it lets Trump side-step the defeat (handed by) the Supreme Court ruling,” he said. 

But the Trump administration could well be preparing to give some ground, he added.

“My sense is that the administration is internally wrestling with the point – do we back down from policy rigidity or do we have the appetite for more friction?

“They still have to come to terms with the Supreme Court rebuke and the likelihood of new tariffs also being declared illegal,” he said.

“And I suspect Trump is looking for a way to move away from this issue without appearing to back down. Trump tends to begin with confrontation but then he adjusts to reality.”

Is the US really in a serious balance-of-payment crisis of the kind seen in Asia?

Sri Lanka was the most recent country to face a full-blown balance-of-payments crisis, defaulting on external debt in April 2022 amid depleted foreign exchange reserves, soaring inflation and an inability to finance imports.

No East Asian territory has come close since the 1997-1998 Asian financial crisis, when the Thai baht collapsed and the contagion spread quickly to Indonesia, Malaysia, the Philippines, South Korea and Hong Kong.

But in pursuing Section 122 tariffs, the US contends it actually is in crisis.

In his Feb 20 proclamation, Mr Trump laid the basis for tariffs this way: “I have been informed by my advisers that the US balance-of-payments position, under any reasonable understanding of the term in the context of section 122, is currently a large and serious deficit.”

Simply put, a balance-of-payments crisis happens when a country runs out of foreign money to pay for imports, debts or other overseas bills.

Countries earn foreign exchange from their exports, tourism or through overseas investors. They spend it on imports, repaying loans or sending money abroad for instance as investments or remittances. If the spending keeps outpacing earnings, problems begin to build up.

A balance-of payments crisis is triggered when lenders suddenly pull back, refusing new loans. Or a country’s foreign reserves dwindle to a point that crashes its currency.

Mr Trump’s contention is that the US is in such a scenario. 

“The US runs a trade deficit, does not currently make a net income from the capital and labour that it deploys abroad and experiences more transfer payments, on net, flowing out of the country than into the country,” he said in the proclamation.

A trade deficit contributes to a balance-of-payments crisis by creating a drain on a country’s foreign exchange reserves when imports exceed exports over time.

Mr Trump noted that the “large, persistent and serious” annual US goods trade deficit has grown by over 40 per cent in the past 5 years alone, reaching $1.2 trillion in 2024 and remaining there in 2025.

“This deficit contributes to the fundamental international payments problems facing the US,” he said.

He also spoke about other trends he said can endanger the ability of the US to finance its spending, erode investor confidence in the economy and distress the financial markets.

He noted changes in the country’s current account that shows its net transactions with the rest of the world in goods, services, primary income (like investment earnings) and secondary income (like remittances or aid).

The annual balance on the primary income turned negative in 2024 for the first time since at least 1960, he noted. 

“From 1960 to 2023, the US ran a surplus in its annual balance on primary income. That positive balance on primary income served as a stabilising force for the US balance-of-payments position even in the face of large and persistent trade deficits,” he said.

“In 2024, however, the balance on primary income turned negative and thus ceased to serve as a counterweight to the trade deficit in the US current account,” he said.

The current account deficit was at 4 per cent of GDP in 2024, the biggest since 2008, Mr Trump noted.

Mr Bhaskaran said while US goods trade deficits have been around for a long time, the US does better on services trade, which means the current account is in only a small deficit as a percentage of GDP. 

And this current account deficit is usually offset by large capital inflows so that the overall balance of payments is not in deficit and certainly not in a crisis, he said.

“There is no evidence of a crisis – the dollar is not collapsing, holders of US dollar assets are not selling in a panic, and foreign investment in US hard assets as well as financial assets continues,” said Mr Bhaskaran.

In the US, it is difficult to imagine balance-of-payment crises taking place, said Dr Joseph Brusuelas, chief economist at RSM US, an audit, tax and advisory services firm that has an affiliate in Singapore.

“When the US dollar was pegged to gold, one could end up in a significant balance-of-payment crisis. But when the US went off gold and then abrogated the Bretton Woods arrangements in 1973, it moved to a floating regime where you don’t have a balance of payments crisis,” he said.

This is because a floating currency automatically adjusts to imbalances, preventing reserve depletion.

Moreover, global finance runs on US dollars. At the end of each day, banks worldwide need up to US$13 trillion in short-term cash, he said. They get it by using US treasuries, dollar bonds, as collateral. “So, the US has enormous structural power that makes the idea of a balance-of- payments crisis a non-starter,” he added.

Nor is an outsized, steep depreciation of the dollar happening or about to happen, he said, rebutting Mr Trump’s other claim.

Dollar dominance is for real, he said, with the US dollar accounting for about 60 per cent of global currency reserves and 90 per cent of forex trades.

“We have US$9 trillion churn every single day in global currency markets. The US dollar is around 90 per cent of those trades,” he said.