Singapore’s SM warns of global turning point amidst tensions

On his opening lecture, SM Lee Hsien Loong, pointed out how geopolitical developments are severely straining the global trade system. Over the past decade, tensions between the major powers have intensified.

Countries have become increasingly anxious to stay ahead of one another and they are prioritising security, resilience and self-reliance, over interdependence and co-operation. Supply chains, once optimised for economic efficiency, are being reconfigured through friend-shoring, near-shoring, and re-shoring.

In addition, restrictions have been imposed on investments, semiconductors, critical minerals, data to preserve leads over competitors, or to deny rivals dual-use products and technology. Some big powers are adopting a more transactional, sometimes coercive, approach to achieve immediate objectives; and giving less weight to more indirect and longer-term benefits.

These structural shifts have accelerated in recent months, says Singapore’s SM. A new administration in the US believes that under the previous system, “the US has been treated unfairly by its trading partners, both friend and foe”, far from the erstwhile win-win view of international trade, investments, or multilateral agreements.

It treats tariffs not only as a preferred economic instrument, but also as bargaining leverage in non-economic domains, to protect its overall national interests. Other countries have responded in kind.

…said SM Lee Hsien Loong.

These strategic policy shifts are re-shaping the landscape of world trade. Protectionism and economic bifurcation are rising. The maritime industry is itself directly affected, with countries acting to reduce reliance on competitors for freight shipping and ship-building, or to displace rivals controlling strategically located ports.

Meanwhile, a second powerful force is quietly impacting global trade patterns, and that is climate change. Climate change and extreme weather events are already affecting established trade routes. Droughts have lowered water levels in the reservoirs supplying the Panama Canal, raising costs and creating uncertainty for vessels seeking passage. New routes, such as the Northeast Passage, are opening up due to the melting Arctic ice.

As a significant emitter, the maritime industry is under pressure to reduce carbon emissions. International shipping accounts for about 3% of all greenhouse gas emissions, roughly as much as global aviation. The industry is therefore actively seeking ways to decarbonise, by using greener fuels, and developing more efficient ships.

Furthermore, beyond green technologies, patterns of trade are likely to shift, to account for the environmental impact of carbon emissions from shipping. Whether this happens through carbon taxes on fuel or carbon border adjustment taxes, the result will be to reorient existing supply chains and trade routes.

Despite all the current challenges, the world still needs to trade, and countries still need to do business with one another, as we were reminded during Covid-19.

Singapore’s SM, also highlighted that this present moment could prove to be another turning point, like the Global Financial Crisis (GFC) in 2008. Given the heightened strategic tensions and policy uncertainty, it cannot be assumed that global trade will continue to keep pace with GDP.

If the trade-to-GDP ratio starts to fall, there will be serious economic and strategic implications. At the least, it will dampen economic growth in many countries. Which will cause further social and political problems, both domestically and internationally.

In that event, the world would truly enter a new epoch, which it has not seen since the Second World War. Naturally, our hope is that whatever the uncertainties and turbulence ahead, world trade will continue to grow. Not just to sustain the maritime industry, but to enable more productive and prosperous lives for the peoples of the world.

…SM Lee Hsien Loong pointed out.