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Will Singapore be next in Trump’s trade crosshairs?

U.S. President Donald Trump has cast doubt on many longstanding trade relationships – not least in Asia. He’s criticised the trade policies of Japan and South Korea. Threatening a trade war with China was at the heart of his presidential campaign. And one of his first measures in office was to pull the U.S. out of what was going to be a transformative trade deal with Asia. With a new victim almost every week since his inauguration, the question is: Who is next in Asia on his hit list? And what does this mean for Singapore? To try to figure this out, we looked at two factors in international trade: the trade balance and currency appreciation/depreciation. Countries posting a trade surplus with the U.S. Redressing the balance of trade is high on the president’s list of priorities. So one way to predict his next move is to look at countries that run a large trade deficit with the U.S. A trade deficit is the amount by which the cost of a country’s imports exceeds the value of its exports. If the U.S. runs a trade deficit with country X, it means that a country X sells more to the U.S. than the U.S. exports to country X. There’s nothing wrong, in principle, with running a trade deficit. But a trade deficit is like a red flag to a bull for a U.S. government determined to bring manufacturing jobs back to the U.S. Looking at the balance of trade between the U.S. and countries in Asia, China is the leading offender, as the graph below shows. China posted a US$347 billion trade surplus in 2016. (If a country runs a trade surplus with a trading partner, by definition the partner is running a trade deficit.) After China, the next three Asian countries that had the biggest trade surpluses with U.S. in 2016 are Japan, Vietnam and South Korea.

What does this mean for Singapore? In contrast to most other countries in Asia, the U.S. runs a trade surplus with Singapore. But that didn’t stop Trump from criticising Singapore for taking jobs from Americans last November. Singapore is a financial hub, so unlike other countries in the region it isn’t taking the blue-collar manufacturing jobs that Trump promised to bring back to the Rust Belt states. But changes to corporate tax rates, and Trump’s promise to hit companies who relocate overseas and then sell to the U.S., could have a negative impact on Singapore’s financial sector. Singapore was also a big supporter of the TPP trade deal, so Trump’s decision to pull the U.S. out could also lead to a cooling of relations. Currency “manipulators” Trump has also raised the issue of foreign governments “artificially” trying to achieve an “unfair” trade advantage with the U.S. by causing their currencies to fall in value. A weaker currency relative to the U.S. dollar makes that country’s imports cheaper in U.S. dollar terms. That’s an important factor in the trade balance. By this measure, Japan, Indonesia, India and Malaysia are the biggest culprits over a five-year time period, as shown below. These countries have seen the greatest weakening (that is, depreciation) in their currencies relative to the U.S. dollar. Over the past 12 months, the Philippines, China and Malaysia have seen the most depreciation. The Singapore dollar has fallen relative to the U.S. dollar, but by less than other regional currencies – making it less likely to attract the ire of the American president.

Trump believes that China has been trying to manipulate its currency to gain an unfair trade advantage over the U.S. But in fact, China has been trying to prevent the depreciation of its currency – not promote it. According to a U.S. Department of the Treasury report, “China’s intervention in foreign exchange markets has sought to prevent a rapid RMB [or renminbi, China’s currency] depreciation that would have negative consequences for the Chinese and global economies.” It estimated that from August 2015 through August 2016, China sold more than US$570 billion in foreign currency in an effort to prevent rapid depreciation of its currency. The U.S. government is limited in what it can do to retaliate against offending trade partners by World Trade Organisation (WTO) rules. And as the U.S. steps away from its prior role as the custodian of global trade, China is ready to fill the gap with a raft of other trade deals. To learn more about how to protect your portfolio as Donald Trump searches for his next trade battle target, read our free special report… here.