Restrained response to US tariffs provides reason for optimism: SM Lee

SINGAPORE – The restrained response of countries following the widespread US tariffs in April prevented an all-out trade war, providing some reason for optimism that the existing trade framework may hold, said Senior Minister Lee Hsien Loong.

“It is quite clear that they want to preserve as much of the framework as possible, so that you do not end up mutually impoverishing each other,” he said.

The world order has come a long way towards unravelling, given the US-China rivalry and the trade imbalances and tensions that have built up between countries, he noted at a dialogue at London-based think-tank Chatham House on Oct 27.

The United States has also decided it will no longer be the champion of free trade and multilateralism, which have underpinned global trade for years.

“Now we talk about security, resilience, tit for tat, and a bilateral, transactional, win-lose approach – at least in some circles,” said SM Lee, who is in Britain for a working visit from Oct 27 to 28.

“Where do we go from there? I think for many countries, the direction it is going – we have grave forebodings, and we are not sure how to make a U-turn, but we will try our best not to go in the most disastrous directions,” he added.

Reflecting on how small states can navigate the global shifts, SM Lee said there are still things that countries can do to promote trade and cooperation with one another.

His remarks come as the US and China agreed on the

framework of a potential trade deal

after months of escalated trade tensions.

US President Donald Trump and Chinese President Xi Jinping are due to discuss the agreement on Oct 30 in South Korea, where world leaders will gather for the Asia-Pacific Economic Cooperation Forum.

Referring to the discussions, SM Lee said these “smoke signals” are encouraging, but the deeper contradictions between the two superpowers will not disappear.

He was speaking at a dialogue on how Singapore is surviving and thriving between China and the US. It was moderated by Dr Samir Puri, director of Chatham House’s Centre for Global Governance and Security.

In his opening remarks, SM Lee suggested three areas countries could work on amid the new geopolitical reality.

First, is to continue to work within the World Trade Organisation (WTO) umbrella. While the WTO has many shortcomings and is inefficient, it represents a certain ideal of how countries should work together that should be preserved, he said.

He cited two initiatives started under the WTO umbrella by groupings that include Singapore.

One is the Joint Statement Initiative on E-Commerce, an agreement on a set of rules that would govern e-commerce, while the other is the Future of Investment and Trade Partnership, an informal partnership between 14 countries that focuses on practical collaboration on investment, trade and dispute resolution, among other things.

Both initiatives are not universal, but they are consensual, and the hope is that they will provide at least a “partial safety net” for the world and the trading system, and other countries will want to join, said SM Lee.

He said there was precedent for “small things growing big”, citing the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which started with just Singapore, New Zealand, Chile and Brunei, and was later almost scuttled after the US joined and subsequently pulled out.

The CPTPP now has 12 members again, including the UK.

SM Lee said the idea was to start something that could be the nucleus around which some crystals would form.

He added: “It shows that small things can grow, and it may not cover the world, but it makes a significant contribution. And I think we should work like that in the WTO.”

The second thing countries can do is to enhance cooperation within their own regions, said SM Lee. Whether it is the European Union or Asean, there is more that can be done to bring down the obstacles to trade and integration, he added.

The third thing is for different regions of the world to link up instead of sticking to the path of least resistance with their own regional blocs, he said.

SM Lee noted that the EU was speaking to Mercosur – a South American trade bloc – and also Asean, and added that it would be beneficial to have “a network, a web which collectively encompasses the world”.

It is also crucial to include China into the rules-based trading system, added SM Lee in response to a question from the audience.

“Because if you keep them out, then you have taken the two biggest pieces off, and you are playing chess without the king and the queen, which are still roaming around the board on their own. That is very difficult,” he said.

He added that it would not be easy as “the rules-based order in which one participant is a lot bigger than the others, calls for forbearance and restraint, and a certain self-enlightened magnanimity, which does not come naturally to any great power”.

“And even powers which have done it for a long time, sometimes relapse,” he said.

SM Lee noted that China has said consistently that it upholds the multilateral trading system and a rules-based order.

“You have not only got to express the right attitude, you actually got to convince people that this is how you are going to behave in real life.”

There was also the question of how to restructure the Chinese economy so that it is less dependent on exports and can have a smaller export surplus and a greater degree of domestic consumption, he added.

On security, SM Lee said that while China has grown stronger and is strengthening its armed forces, most countries in Asia do not see it as a threat.

Some countries do have bilateral issues with China, but these issues are not framed as existential problems as the countries also have trade and other relationships with China, he said.

At the same time, countries in the region do want to maintain their ties with America and do not want the US to lose interest in the region, he said.

SM Lee acknowledged that this means the US will express its preferences on how countries conduct their relations with other powers.

“All the powers will say, ‘I am not asking you to choose, but I would like you to be my friend.’ And we accept that,” he said.

“But I think for all the countries in the region – all the smaller countries in the region – we believe that it is better to be pushed from both sides and yet have manoeuvring room and freedom of action and autonomy in a region which is open, where you have choices, where there is a balance of power, and multiple players are here.”

During the dialogue, SM Lee was asked about how Singapore mitigates security risks associated with immigration, such as espionage and disinformation, without being discriminatory.

To this, SM Lee said immigration issues are easy to politicise, and added that some politicians have been making it a hot issue throughout the last few terms of government.

But foreigners are needed to boost the workforce in Singapore, and make up one-third of the population and have to be accommodated, he said.

Apart from the security risks if some bring in their foreign disputes, these substantial numbers can also cause social issues to arise, and foreigners have to understand Singapore’s rules and norms, he added.

“They have to know that if you are in Singapore, please keep the bling down. Do not go around popping champagne which is $20,000 a bottle with sparklers, and do not zoom your Ferrari or Lotus or whatever down the middle of the road in the middle of the night just to let everybody know that you have arrived,” he said.

“You would not have thought that that was something you needed to tell anybody, but sometimes it is helpful to remind them.”

SM Lee added that it was important to manage the “overall package”, such that Singapore has an economy with the manpower it needs and also a society which can maintain identity and cohesion.