US tariffs may last well after Trump; crucial for countries to deepen trade ties: SM Lee
(Photo credit: ST Photo/Kevin Lim)
Source: The Straits Times
Countries that support free trade should strengthen cooperation and work together to adapt to evolving global trade dynamics in response to the United States’ increasingly protectionist stance.
This is crucial, as it may be difficult for the US and the rest of the world to return to the pre-April 2 landscape, when President Donald Trump unveiled his so-called reciprocal trade policy, said Senior Minister Lee Hsien Loong.
The former prime minister was speaking at the Economic Society of Singapore’s (ESS’) annual dinner on July 15.
SM Lee noted that once tariffs are in place and new businesses emerge that rely on that protection, it becomes politically unfeasible to remove them, as these businesses, now with vested interests, will push back against any rollback.
“It will not go back to the status quo in trade policy, in economic policy. Once you make a move, you can’t take it back.”
He noted that former US president Joe Biden did not overturn earlier tariffs that Mr Trump imposed on China in his first term.
SM Lee said that it is unclear if the US will in the future abandon its protectionist stance, but that should not stop other countries from strengthening international cooperation among one another.
He noted that the US has taken a more narrow, bilateral and transactional view of international trade, and, while not perfect, the World Trade Organisation (WTO) framework has nonetheless enabled extensive free trade among many countries.
“We will have to see whether that is (still) possible, because when you have the biggest economy in the world taking a radically different approach and really not just withdrawing from, but expressing its disapproval of, the WTO system, that will have repercussions.”
Acting in defiance of economic laws and the interests of other countries will be very hard to sustain for the US, SM Lee said.
“One thing I have learnt in government is that you can fail to follow economic principles, but you cannot repeal an economic law, whether you follow (it) or not, the economic law exists.
“That’s just the way the world works. That’s just the way human society works, and if you don’t follow it, you may have your reasons and you want to override it and do something different, but market forces, incentives for people to act in certain ways in their own interests are very powerful,” he said.
He noted that the Americans still have to trade with the rest of the world, such as in rare earths.
“Maybe at some point you (the US) can come back and participate again in a more open and constructive way, but that’s the best possible scenario. It may or may not happen.”
Asked what other countries should do in the meantime, SM Lee said they can build partnerships with like-minded economies within a region such as Asean, a broader grouping like the Regional Comprehensive Economic Partnership, or through wider trade pacts such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
“And I think we can also work together on the WTO framework... how to make the WTO work without being paralysed by consensus gridlock.”
He said countries should also diversify their trade relationships by exploring new markets in regions like Latin America and Africa.
SM Lee’s dialogue with ESS president Euston Quah also touched on domestic economics and policies, such as on Singapore’s certificate of entitlement (COE) system.
A preferential system where COEs are offered at a lower cost to certain groups is not feasible for Singapore, SM Lee said.
He was responding to a question by Professor Quah that made reference to calls for COEs to be made more affordable to some drivers based on need, such as families with young children.
This cannot work in tandem with the current COE system, which is meant to allocate scarce space on the road according to economic principles, SM Lee said.
“It becomes very difficult for the Government to design a system which takes into account how many kids you have, how young they are, whether you’ve got somebody disabled in the family, whether you have an old folk, whether your job requires you to go place to place, delivering supplies, meeting customers, or whether you are driving to a place of work very far away,” he said.
“I think if you want to design a scheme which worries about all those things, it would fail.”
He likened the COE to a proxy for road space, with prices fluctuating depending on demand from prospective car buyers.
This system is working quite well, SM Lee said, adding that the Government has issued additional COEs to give more people the right to own vehicles.
“If you want the price to be lower, then you must put out more COEs, which is what the Government is now doing. We took from the future. We are putting out 5 per cent, 10 per cent more, and therefore the supply is higher,” he added.
“There’s really no easy way to make something which is valuable be distributed fairly, and at the same time, very cheap.”
The Land Transport Authority has said it would add up to 20,000 additional COEs across all five vehicle categories over several years from February 2025.
SM Lee also cited the Chinese city of Beijing, which adopted lotteries to determine which drivers could own licence plates. He said he did not believe this was the right solution for Singapore.
“I can guarantee every Singaporean affordable, convenient transportation. I cannot guarantee every Singaporean an affordable car.”
He added that cars differ from Housing Board flats, where “every Singaporean can get one, maybe three-room, maybe five-room, maybe two-room, but every Singaporean household can get one. But cars, no”.
SM Lee said it is better to provide direct cash assistance to the group in need, instead of creating complicated schemes to help them.
“You have a special need, for example, you have a kid. Rather than I give you a cheaper COE, I give you a bigger baby bonus, and if you want, you can use that to... help to pay for a little bit of a car,” he said.