U.S. Tariffs' Impact on Singapore's Economy and Markets

In early February 2025, Singapore's Foreign Minister, Dr. Vivian Balakrishnan, addressed concerns regarding the potential impact of U.S. trade policies on the nation. While he indicated that Singapore is unlikely to face direct tariffs from the United States, he acknowledged the possibility of indirect effects due to Singapore's status as a small, open economy. This article delves into the implications of U.S. tariffs on Singapore, examining the historical context, potential economic impacts, and the broader consequences for the average Singaporean. We will also explore the actions the government is taking to safeguard the nation’s economic interests and the effects on financial markets for Singaporean and U.S. financial assets.

The U.S.-Singapore Free Trade Agreement (USSFTA), implemented in 2004, has been instrumental in strengthening bilateral trade relations. Since its inception, bilateral trade has tripled, with the United States consistently maintaining a trade surplus with Singapore. The agreement has been a cornerstone of the U.S.-Singapore economic relationship, contributing significantly to Singapore’s growth as a key trading partner in the Asia-Pacific region.

Dr. Balakrishnan expressed confidence that Singapore is unlikely to be targeted by direct U.S. tariffs, primarily due to the favorable trade balance the U.S. maintains with Singapore. However, he cautioned that the global economic landscape is dynamic, and while direct tariffs may not be imminent, the situation could evolve. The imposition of tariffs by the U.S. on imports from countries like China, Canada, and Mexico highlights the unpredictable nature of trade policies under the current U.S. administration.

Despite the low probability of direct tariffs, Singapore remains susceptible to indirect effects. As a small, open economy, Singapore's economic health is intricately linked to global trade dynamics. The imposition of tariffs by the U.S. on other nations can lead to disruptions in global supply chains, increased production costs, and shifts in trade patterns. Such changes can adversely affect Singapore's export-driven economy, potentially leading to reduced demand for Singaporean goods and services in affected markets.

The ripple effects of U.S. tariffs could manifest in several ways:

Stocks (Equities)

Singapore's stock market, represented by the Straits Times Index (STI), is heavily influenced by global trade dynamics. As of early 2025, the STI has a market capitalization of around SGD 800 billion (USD 600 billion). The index is weighted toward sectors like finance, real estate, telecommunications, and industrials, many of which are sensitive to global trade disruptions.

Singapore's government bonds (SGS bonds) are generally considered low-risk, but the potential for global economic turmoil due to U.S. tariffs could impact bond yields. In response to increased geopolitical risk and inflationary pressures from tariffs, bond yields may rise, driving prices down. Singapore’s 10-year government bond yield is currently hovering around 2%, but if global trade disruptions continue, we could see yields climb to 2.5% or higher, as investors demand more yield for the increased perceived risk. For investors holding SGS bonds, this could result in capital losses as bond prices decline. Additionally, corporate bonds in Singapore may face downgrades, particularly for companies in trade-heavy sectors like manufacturing and logistics. Companies in these sectors may face difficulties servicing their debts as operating costs rise, leading to bond sell-offs.

The property market in Singapore, particularly the residential and commercial segments, is another area that could face disruption. The real estate market, which makes up a significant portion of household wealth, could be hit if U.S. tariffs lead to a slowdown in the global economy. As of early 2025, Singapore’s real estate market has seen steady growth, with the private residential market seeing an annual price increase of about 5%. However, if foreign demand for property slows due to reduced global liquidity or concerns about long-term economic stability, we could see a dip in property prices, particularly in the luxury and investment-grade sectors. A correction of 5% to 8% in real estate prices could occur if global growth falters as a result of trade tensions.

Stocks (Equities)

The U.S. stock market, particularly the S&P 500 Index, which represents the performance of the 500 largest publicly traded companies in the U.S., is significantly influenced by trade relations, especially with major partners like China. The U.S. is home to many companies with large international footprints, such as Apple, Tesla, and Caterpillar. These companies rely on global supply chains, and tariffs on goods—especially from China—could significantly raise production costs, squeezing profit margins.

U.S. Treasury bonds are seen as a safe haven during times of global uncertainty, and if U.S. tariffs continue to disrupt the global economy, the demand for U.S. government bonds could increase, pushing prices up and yields down in the short term. The yield on the 10-year Treasury bond, currently around 3.5%, could drop to 3% or even lower as investors flock to the safety of U.S. debt. However, over the longer term, if the trade war causes persistent inflationary pressures (due to rising import prices), the Federal Reserve might raise interest rates to combat inflation. This could lead to higher bond yields and lower bond prices, causing capital losses for long-term bondholders.

U.S. real estate, especially commercial properties, could be significantly impacted by trade disruptions. The commercial real estate market is highly sensitive to shifts in global demand, and companies that rely on international trade, such as warehouses and logistics companies, could see reduced profitability. As of 2025, the U.S. commercial real estate market is valued at over USD 17 trillion. In the event of a prolonged trade war, real estate investors may begin pulling capital out of the sector, leading to declines in property values. For residential real estate, mortgage rates could rise due to higher interest rates as the Fed combats inflation, making homeownership less affordable and leading to a decline in home prices. We could see residential real estate prices fall by 5% to 10% if tariffs persist and global economic uncertainty continues to grow.

Impact on Employment

The potential consequences of global trade disruptions on the employment landscape in Singapore are both broad and significant. As of 2023, Singapore’s manufacturing sector employs over 500,000 people, contributing approximately 20% to the nation’s GDP. Industries such as electronics, logistics, and retail are integral to the country’s economy. However, trade tensions and disruptions in the global supply chain can create a ripple effect, potentially leading to job insecurity and reduced wage growth, especially in sectors that rely on global trade. For example, in 2023, Singapore’s electronics output fell by 6.3% year-on-year, affecting thousands of workers in the industry. Furthermore, trade uncertainties often lead to volatility in demand for products, and as a result, workers in logistics and retail may face stagnant wages, reduced working hours, or even layoffs. This has already been observed in the retail sector, where retail sales in Singapore grew by just 1.6% in 2023, a marked slowdown from previous years. With trade disruptions continuing, it is anticipated that these sectors will face continued pressure, impacting workers’ income and job stability.

The cost of living for the average Singaporean is poised to rise significantly as global trade disruptions drive up the prices of key goods and services. Singapore is highly dependent on imported goods, with imports making up more than 40% of the country’s GDP. This means that disruptions to global supply chains—whether due to trade wars or logistical bottlenecks—are likely to increase production costs for local businesses. For instance, food prices have already risen by 6.7% in 2023, while fuel prices increased by 12%, as a result of supply chain challenges and global oil market fluctuations. These price hikes are expected to put further pressure on household budgets, particularly for lower-income families. Additionally, raw material costs are projected to rise by 4-5% in the coming year, which could increase the prices of everyday consumer goods, such as clothing and household items. The effects of these cost increases will be most keenly felt by households already struggling with inflation, as the higher cost of goods erodes purchasing power and makes basic living expenses more burdensome.

The investment landscape for Singaporeans is also facing heightened uncertainty due to trade tensions and volatility in global financial markets. In 2023, the Straits Times Index (STI) dropped by 15% from its peak in 2022, largely due to global economic pressures linked to trade disruptions and political instability. With more Singaporeans turning to equities and bonds to build wealth—statistics show that about 10% of households now hold stocks—any downturn in the financial markets can have a significant impact on retirement savings and wealth accumulation plans. The volatility in stock markets due to uncertainties in global trade could erode the value of these investments, leaving individuals with less than expected to meet their long-term financial goals. For example, a 10% drop in the value of equity portfolios could mean a significant shortfall for investors relying on these assets for retirement. While government measures, such as the Monetary Authority of Singapore’s (MAS) policy adjustments, are designed to support market stability, they may not fully shield investors from the impact of global economic instability. As trade disruptions continue, Singaporeans may need to adjust their financial strategies to safeguard their investments and ensure long-term financial security.

To mitigate the economic impact of global trade disruptions, the Singaporean government has taken several proactive steps. The Monetary Authority of Singapore (MAS) has implemented measures to ease monetary policy, such as lowering the nominal effective exchange rate in 2023. This policy aims to support Singapore’s export competitiveness and financial stability, but its effectiveness may be limited if trade tensions with major partners such as the United States continue. MAS’s strategy, while supportive, may not fully offset the broader challenges caused by sustained trade disruptions, especially if tariffs persist or new barriers to trade emerge.

While Singapore is not expected to face direct U.S. tariffs, the nation's open economy renders it susceptible to indirect effects arising from global trade tensions. The government is actively implementing measures to mitigate these impacts and safeguard the well-being of its citizens. However, the evolving nature of international trade policies necessitates continuous vigilance and adaptability to ensure sustained economic stability and growth. Singapore’s ability to diversify trade partners, enhance economic resilience, and manage trade disruptions will be key to navigating the challenges posed by U.S. tariffs and their indirect effects. The average Singaporean, from the worker to the investor, will need to adapt to a changing global landscape, but the government’s policies offer a crucial safety net during this uncertain time.