Whatever your opinions on President Donald Trump, the most relevant question should come down to your wallet. Let’s be frank: there’s nothing a Singaporean can do who the Americans elect, short of planning our finances accordingly. And while it’s too early in the Trump Presidency to make definitive conclusions, we can take a calculated guess at probable effects:
Caveat: it’s too early for any precise analysis
Two factors turn any kind of analysis into speculation.
The first is that the Trump administration isn’t very clear about its goals and policies. Perhaps this is deliberate, to prevent markets from anticipating changes; or perhaps the Trump administration just wants to rely on flexibility (read: winging it). Whatever the case, few things are certain about their direction.
The second factor is that the Trump administration is only months old. Even if all their policies are implemented, we won’t see immediate changes in the market. It will take a while more to even spot general trends in the market’s response.
However, we can take a calculated guess:
1.Higher import taxes in America can raise your mortgage rates in Singapore
Bear with us, as this is a somewhat long chain of effects to explain.
President Trump wants to protect domestic businesses in America, by imposing import taxes. This is to stop cheaper foreign products (such as Chinese or Mexican imports) from undercutting America’s domestic companies.
But American companies tend to have more expensive products, because the cost of production tends to be higher. For example, American labour costs are higher, due to the imposition of factors such as a high minimum wage and costly healthcare benefits.
This means spending must increase. The imported goods are no longer cheaper than the domestic goods (due to import taxes), and the domestic goods are pricey. This increased spending may boost the American economy for a time, but it will result in higher inflation (the cost of living will rise faster).
America’s central bank, the American Federal Reserve (the Fed), could respond by hiking interest rates. When interest rates go up, it reduces inflationary pressure. In fact, the Fed is already in the process of raising interest rates, and it’s already caused mortgages in Singapore to get more expensive.
Now Singapore’s home loans (but not HDB loans) are often pegged to the Singapore Interbank Offered Rate (SIBOR). SIBOR tends to move in tandem with America’s interest rate. For example, following the global financial crisis in 2008/9, the Fed set the interest rates to zero. This caused SIBOR rates to fall to record lows in Singapore. We’re still seeing the aftermath of that today, with bank home loans averaging around 1.8 per cent per annum, whereas HDB loans cost 2.6 per cent per annum.
The worry now is that, if the Fed imposes rate hikes to trump inflation (see what we did there?), they also indirectly drive up home loan interest rates in Singapore.
2.More expensive to buy American products
The Trump administration isn’t just talking about tariffs, they’ve repeatedly mentioned a desire to impose tax cuts. These tax cuts will function as a form of economic stimulus, as lower taxes means people will have more purchasing power. With regard to businesses, lower taxes means more opportunity to expand, and that in turn translates to higher employment (or so the theory goes).
The expectations of these stimulus measures have seen investors rushing back to the US dollar (they are expecting it to rise in value). This also means more are abandoning other currencies, such as the euro, yuan, pound, and yes, the Singapore dollar.
As such, the Singapore dollar is set to weaken further in 2017. This makes it more expensive to buy products priced in American dollars. While are probably thinking in terms of consumer products, such as electronics, this is just the tip of the iceberg.
Remember that some commodities, such as jet fuel and gold, are always priced in US dollars. As such, a rising US dollar means the cost of air travel will get more expensive, as will the cost of buying gold.
As a flip side to this, a weaker Singapore dollar means it’s cheaper for other countries to buy Singaporean good. Our export oriented businesses could stand to profit and grab a bigger market share, due to more competitive pricing via forex rates.
3.A new challenge in attracting American businesses
The Trump administration wants to encourage its corporations to hire Americans, and establish factories back home. This is related to what we mentioned in point 1: American labour costs and corporate taxes are high, which is why over the past few decades many of them have shifted operations overseas.
If the Trump administration succeeds in bringing American businesses home – whether by threatening them with higher taxes, or rewarding them with lower taxes (again, tax cuts are a big push by Trump), we could see fewer American companies setting up here. This has consequences such as fewer potential jobs for locals, as large multinationals tend to raise employment when they arrive (consider how many Singaporeans are employed by McDonald’s and Starbucks, for example).
This is not a good time for Singapore to face such a challenge. Our redundancies hit a seven-year high in 2016, and many of the retrenched are older Professionals, Managers, Executives and Technicians (PMETs); precisely the demographic that tends to find lucrative employment with large corporations.
Of course, America is not the only country with large corporations, nor is our job situation overly dependent on them. But Trump’s policy – if it translates to fewer American businesses arriving here – may cause us a temporary loss of opportunity, while we woo corporations from elsewhere (e.g. China).
4.An anti-globalisation shift
As we’ve seen from Brexit, there is a growing resistance to free trade in many parts of the Western world, and the Trump administration is the latest incarnation of this. The demise of the Trans-Pacific Partnership (TPP) is emblematic of this. While Singapore already has a free trade agreement with the United States (USSFTA), the TPP would have brought us busier ports and a larger base of customers.
Continued distrust of free trade will ultimately hinder Singapore’s development, as we are a trade hub reliant on the constant flow of goods. The coming decades will bring further challenges in this area, and Singaporean businesses will have to rely more than ever on innovation and adaptability.
In the meantime, the Internet remains a bastion of globalisation. Look on the upside: online shopping and affordable shipping still conspire to keep the doors open. Right now, you can buy USA brands and have it shipped over for just $2.99 with Prime Membership, via sites like ezbuy.sg.
Where politics get in the way, entrepreneurship and the digital world will continue to provide a fallback.