BUSINESSES are entering a period of extreme fear of the unknown. The on-again, off-again tariff and other trade controls by US President Donald Trump has generated radical uncertainty for businesses. Even though there is a 90-day pause, nobody (other than President Trump) knows whether reciprocal tariffs will eventually apply, and if so, at what rate for what countries, given that more than 70 countries are said to be in negotiations to cut bilateral deals.
What is the end game? Understanding the Trump administration’s priorities can provide some insight into what shifts may be lasting and which are transitory. There appear to be three.
One – raise revenue through tariffs with the proposed setting up of an External Revenue Service to replace the income tax with tariff revenue.
The swift formation of the Singapore Economic Resilience Taskforce (SERT) to sense-make, address immediate concerns and recommend longer-term strategies reflects the gravity of the situation confronting Singapore’s economic future. In the short term, the Ministry of Trade & Industry has lowered Singapore’s gross domestic growth forecast from a range of 1 to 3 per cent to 0 to 2 per cent, and a recession cannot be ruled out.
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Over the longer term, Singapore’s relevance and value as an open trading hub are severely threatened if the rules-based multilateral system is replaced with a power-based unilateral system, where trade deals need to be cut based on a complex system of different rules for different countries.
In such times of uncertainty, businesses need to decode the tariffs’ impact, deepen transformation, and diversify markets to survive in a new economic order.
Decode tariffs
The tariffs’ impact on business cost structures, business and consumer demand, and their relative competitive advantages is bound to be substantial. If businesses are producing goods that sell directly into the US, they will have to consider whether they can absorb the 10 per cent tariffs by operating with a reduced margin, or have the leverage to pass it through to the buyer. If they are part of the intermediate supply chain bound eventually for the US from China, the prohibitive 145 per cent tariffs simply make trade untenable, which will mean lower demand.
Businesses will need robust customs and trade data of their goods to model the impact of new tariffs and the mitigating options. They should also analyse how the tariffs affect competitors’ cost structures and substitute products. This will help determine whether they can sustain their margins – and even accelerate sales – or if they need to downsize their business.
They can explore legitimate means to reduce the customs value of their goods to the US by rearranging contracts with suppliers so that an importer can legally report an earlier sale price, before mark-ups by intermediaries. Or they can consider splitting payments to suppliers into two amounts, where only one of which would attract duties. Reimagining pricing strategies from a customs value perspective through unbundling can potentially minimise the impact of the tariffs.
Given the uncertainties, businesses need to stay abreast of developments and engage trade experts to work out the different scenarios. Businesses can refer to Enterprise SG’s website, which contains up-to-date information on the tariffs, or get in touch with the trade advisers from the Centre for the Future of Trade & Investment (CFOTI) in the Singapore Business Federation (SBF).
The disruption in trade will impact financial resources, particularly working capital and trade financing. Businesses need to engage their bankers now to ensure that the financing lines remain open, and if need be, request extensions. Businesses can tap into the Enterprise Financing Scheme (EFS) for both trade financing and working capital. In the recent Budget 2025, the maximum loan quantum for trade financing was increased to S$10 million to support more businesses.
Deepen transformation
Counter-intuitive as it may be, it would be desirable and advisable for businesses to deepen and speed up moves to become more innovative and more efficient. The universal tariffs of 10 per cent will likely stay. Businesses will need to factor that into their overall costs and accelerate their transformation to remain competitive – either by producing better products that can command higher pricing or reducing their operating costs to stay competitive.
Budget 2025 has introduced many initiatives to support enterprise transformation, such as the new SkillsFuture Workforce Development Grant with up to 70 per cent funding for job redesign; the revamped SkillsFuture Enterprise Credit which provides S$10,000 for workforce transformation; and a S$150 million fund to encourage adoption of artificial intelligence (AI) through the Enterprise Compute Initiative. The government has also made significant top-ups to research and development and the National Productivity Fund. Businesses should seek out this support to upgrade their workforce, accelerate digitalisation and AI adoption, and drive innovation.
Diversify markets
As the economic order transitions from globalisation to “club-alisation”, businesses will have to learn to operate in a world of “clubs and fences”. Regulatory clubs will be formed among like-minded countries that offer a reduction in barriers and costs for cross-border transactions. Fences, which are regulatory barriers, will then be erected to slow or block business activity between countries that compete strategically or ideologically.
Operating within clubs or crossing fences will bring both risks and rewards. Businesses will have to make choices regarding when to confine their operations within existing clubs and when to cross regulatory fences. Crossing a fence, however difficult, may offer tangible rewards, such as access to new markets, reduced production costs and decreased competition. Businesses will need to develop strategies to maximise the benefits of operating within clubs, or minimise the risks of crossing fences.
Diversification of markets and production is critical. Gone are the days when businesses can operate based on a global supply chain that is “just in time” with optimisation. Instead, businesses need to reconfigure their supply chain with redundancies for a “just in case” scenario. Navigating sovereign state interests and interventions will become more complex for businesses.
Still, it is not as dire a situation as one might think. The US accounts for 13 to 15 per cent of world trade, and America’s share of Singapore’s non-oil exports is around 10 per cent. While the US market is attractive given its high consumption spending and market dominance, there are other prospective global markets that can be equally appealing for our businesses. For some businesses, the US market has shrunk as a percentage of their overall sales. The new tariffs may accelerate this process, bringing other consumer markets to the fore.
If the rest of the world is prepared to remain largely free and open to trade, then there will still be business to be done with like-minded countries. The good news is that Singapore is already a member of these “clubs”. Singapore’s network of 27 free-trade agreements (FTAs) with more than 65 trading partners covers 90 per cent of its trade. Based on the FTA survey conducted by SBF in 2023, the top three FTAs most utilised by Singapore businesses were the Asean Trade In Goods Agreement, the European Union-Singapore FTA and the Regional Comprehensive Economic Partnership Agreement.
The three FTAs offer tariff exemptions and streamlined rules of origin to Asean (a 670-million-strong market that is increasingly middle class and digitally literate), Australia, China, Japan, South Korea, New Zealand and the EU. Recent agreements such as the Pacific Alliance-Singapore FTA open new doors in Latin America, and the FTA with the Gulf Cooperation Council helps our businesses access the Middle East markets.
Businesses need to more actively explore these markets by leveraging Enterprise SG and SBF’s network of overseas offices and use the Market Readiness Assistance Grant to diversify and internationalise their market reach. They can also engage the FTA advisers in CFOTI to explore how to leverage Singapore’s network of FTAs to access markets and increase business opportunities.
Stronger as one: Navigating the new economic era together
We are at the dawn of a new economic order, and the transition is going to be messy because it is uncertain where the final equilibrium will land. But Singapore’s robust economic foundation and strong fiscal reserves give us agency of action. Our businesses are agile and have overcome adversity time and again (most recently through the Covid-19 pandemic) by working closely together with the government, unions and the trade associations. The strong tripartite partnership to keep the Singapore economy going is our open recipe for success. If we work together, Singapore can continue to be the shiny connected red dot even in the new economic order.
The writer is chief executive officer of Singapore Business Federation
