Singapore's stock market is taking a battering, thanks to the tariff stand-off between Chinese President Xi Jinping and U.S. President Donald Trump.
What are tariffs?
Tariffs are taxes imposed on a particular class of imports or exports.
For example, Country A can choose to impose tariffs on goods and services they import from Country B.
They can be a fixed fee (e.g. extra S$1,000 on all cars from Country B) or based on the value of the product (e.g. 20 per cent of the price of a Country B car added on top).
Back in Sept. 2018, Trump slapped a 10 per cent tariff on US$200 billion worth of goods imported from China, due to certain foreign policy differences.
In retaliation, China imposed tariff hikes of five and 10 percent on US$60 billion worth of 5,207 American goods.
Since then, both American and Chinese officials have been trying to strike a deal to end the standoff.
So did they strike a deal?
Unable to resolve their outstanding issues, Trump raised the 10 per cent tariff to 25 per cent on May 10.
In retaliation, China announced they would raise their tariff rates to 25 per cent starting on June 1.
What's the fallout?
Since the extra costs are borne by the companies bringing in the goods, those costs are often passed on to the consumer.
That means more expensive goods.
The Dow Jones fell 617 points after China's retaliation, causing unrest in the American stock market.
Also, the Chinese tariffs on U.S. goods make it difficult for U.S. farmers to sell their products.
However, Trump has promised billions more in government money as aid to the farmers affected by the tariffs.
What's the fallout for Singapore?
The Malays have a saying that when the elephants fight, the mouse deer in the grass get squashed.
Everything that the superpowers do affects us.
As a result of the uncertainty surrounding the trade talks, the Singapore stock market has taken a downward turn.
The Straits Times Index fell 39.22 points or 1.2 per cent on Monday, May 13, according to the Business Times.
Stocks fell a further 32.71 points, or 1.01 per cent when they opened on May 14.
This similar trend was seen in other Pacific countries like Japan, South Korea and Australia.
Chan Chun Sing: Gird ourselves to deal with the impending challenges.
Minister for Trade and Industry Chan Chun Sing noted the seriousness of the US-China trade dispute and said that it "reflects deeper tensions between the US and China, and domestic challenges within the US and Chinese economies".
Chan hopes that both countries will overcome their respective domestic challenges, and be able to deal with each other on the basis of mutual respect and mutual benefit.Chan said that Singapore cannot be immune from the US-China trade fallouts and will have to "gird ourselves to deal with the impending challenges".
He added that Singapore must continue to work with like-minded countries to uphold a rules-based, stable and predictable global trading system.
Things will get better right?
Well Trump has said he's willing to impose tariffs on US$325 billion worth of imports from China that are not currently covered by the tariffs, according to Bloomberg.
So things may actually get worse, until a deal is worked out.
Trump and Xi are scheduled to meet during the next G20 summit in June.
When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!— Donald J. Trump (@realDonaldTrump) March 2, 2018
Top image from Donald Trump's Facebook page.