You think tariffs are just numbers in the news. But behind every percentage are a number of families out of of work, businesses shuttered, futures derailed. We are a small boat in choppy waters -- when the big ships start ramming each other, we must steer with precision or be swamped. If you believe we are immune to the storm, then you have not understood what keeps Singapore afloat. Trade is our lifeblood. When others close their doors, we must sharpen our minds, open new windows, and never ever grow complacent.
A speech that Lee Kuan Yew would have given
Recently Mr. Lee Hsien Loong gave a speech on the uncharted waters that is to come in the wake of the tariff war. It's the elder statesman warning of the dangers ahead but calming nerves with assurance of how we can navigate through this if we remain united the way we weathered crises in the past. Generally a good rallying call, but I think Lee did not provide an understanding of specifics of the dangers and opportunities for Singapore.
I put on Kishore Mahbubani's hat and present the possible outcome scenarios of the tariff war which comes with the dangers and opportunities.
Scenario 1 : A Full Decoupling
This is the "nuclear option" where China and US ban imports and exports between them. The economic outcome is MAD - mutually assured destruction. The 125% / 145% tariffs lobbed at one another is just high drama. Both Trump and Xi certainly comprehend this is just sabre rattling. It will never happen. Let's just entertain this scenario and see what it means.
Winners:
Short-term local industries, neutral countries like Vietnam, India, Mexico, and commodity exporters (Australia, Brazil, Russia).
Losers:
Global supply chains, multinational companies, global consumers (higher prices), and the stability of emerging markets exposed to both USD and RMB volatility.
Risks:
The biggest danger is global fragmentation: two financial, trade, and tech ecosystems running parallel, forcing all other countries to "choose a side" or pay higher transaction and risk premiums. Already President Xi has warned countries not to play sides when they negotiate with US.
What it means for China:
The U.S. is one of China’s biggest customers — about 15-17% of China’s total exports go to the U.S. A total ban means (1) factory closures in which China is vulnerable because it has a very integrated supply chain, means across the entire supply chain closure, massive unemployment in export-heavy regions causing social instability, (3) collapsed tax revenue for local governments at a time when China is having massive local debt burden of possibly US$44 trillion. This means, unlike the US, it does not have the financial resilience to bail out the country, (4) in tech and components - China has made progress to be tech self-reliant, but still relies heavily on U.S.-origin technology in advanced semiconductors, software, aerospace parts. Without legal access, domestic industries like telecom, aviation, and AI would be crippled. China's 1,300 Boeing planes will run out of spare parts.
China will try to accelerate it's Dual Circulation Strategy (away from export-driven to consumption-driven economy) but it will be a chaotic push for self-reliance based on domestic consumption (which it has been unable to achieve since 2015).
What it means for United States:
The U.S. imports from China a huge volume of goods. End consumer goods are elastic, replaceable. Component goods cannot be replaced in quick time. A sudden ban would cause retail shortages, price spikes and serious manufacturing disruptions. It will increase dependence on alternate suppliers like Vietnam, Mexico, or India — at higher costs.
What it means for the world:
Trade disconnection:
- Domestic manufacturers in both countries fill gaps.
- Other emerging markets (Vietnam, India, Mexico) attract supply chain relocations.
This leads to :
- Supply chain inefficiencies.
- Global price inflation for tech, consumer goods, energy.
Financial decoupling :
- Alternative financial systems (CIPS for China, SWIFT++ for U.S.) get accelerated development.
- Non-U.S. allies of China deepen RMB settlement.
This leads to :
- Financial fragmentation.
- Increased transaction costs.
- The currency pair USD/RMB may become rare, leading to global liquidity crunch.
Tech split:
- Local tech ecosystems (chips, AI, cloud services) become self-reliant.
- Nations like India, ASEAN, and EU tech firms could fill gaps.
This leads to :
- Slower innovation pace due to loss of global collaboration.
- Higher R&D costs.
- Bifurcated technology standards (5G, semiconductors).
Financial system realignment:
- RMB may gain share in Asia and Africa for trade settlements.
- Dollar remains dominant for commodities and hedging.
This leads to :
- RMB liquidity shortage in global markets.
- USD remains irreplaceable for derivatives and reserves, causing stress for RMB users.
Strategic realignment:
- Regional trade blocks tighten: USMCA, EU, RCEP, BRICS+.
- Military-industrial self-sufficiency could grow in both U.S. and China.
This leads to :
- Global political polarization hardens.
- Increased military tension.
- Risk of new Cold War-style standoff.
In the short term China would likely take the harder hit, but in the long run, both would suffer deep damage. The U.S. would face a decade of rebuilding domestic industries or finding trusted suppliers, while China would have to overhaul its entire growth model away from trade.
Scenario 2 : Economic Cold War
Trade becomes fully politicized. Both countries erect strong economic walls around tech, finance, data, and raw materials — not unlike the U.S.-Soviet Cold War, but economic, not military.
- Global tech standards split into “U.S. bloc” vs “China bloc.”
- Cross-border investments decline sharply.
- Military tensions influence economic choices (e.g., Taiwan blockade or South China Sea incidents leading to sanctions or blockades).
Winners:
Defense contractors and national-security-centric industries.
Countries that can balance both sides (e.g., Brazil, Saudi Arabia) profit from playing middleman.
Risks:
Severe global recession possible.
Global institutions like WTO lose relevance.
Scenario 3 : Controlled Decoupling War
Both sides gradually reduce mutual dependencies, especially in tech, finance, and supply chains, but avoid a total split. Strategic industries (like semiconductors, EVs, and AI) are prioritized for national self-reliance.
- U.S. reshoring manufacturing to allies (Mexico, Vietnam, India).
- China boosts its “dual circulation” strategy: self-reliance in tech, domestic consumption focus.
- Tariffs remain but get more targeted — fewer blanket taxes, more “strategic weaponization.”
Winners:
- Neutral countries (Southeast Asia, India) benefit as supply chains diversify.
- Domestic industries in both nations protected from foreign competition.
Risks:
Higher costs for consumers globally.
Lower global growth due to supply chain inefficiencies.
Scenario 4 : Managed Rivalry
Both sides accept the reality of long-term rivalry but maintain pragmatic cooperation in specific areas: climate change, global finance, and basic trade in non-strategic goods.
- Tariffs are negotiated down, but non-tariff barriers (e.g., security reviews, tech blacklists) increase.
- Joint efforts on issues like carbon emissions, pandemic response, or AI ethics to prevent catastrophic outcomes.
- Occasional flare-ups over Taiwan, the South China Sea, or human rights, but no full-scale economic severance.
Winners:
- Multinational companies able to operate in both systems.
- Global consumers enjoy more stable prices.
Risks:
- Fragile balance: any geopolitical misstep (Taiwan, cybersecurity attacks) could reset the situation to “Cold War” mode.
Scenario 5 : Reconciliation & Global Cooperation
Very unlikely, but who knows what can happen when American politics gyrate from Republican nationalism to Democrat globalism. Both US and China de-escalate for economic self-interest, recognizing the cost of conflict. A new rules-based global trade deal (possibly WTO 2.0) emerges, re-integrating supply chains.
- Tariffs rolled back significantly.
- New global tech standards co-authored by the U.S. and China.
- Multilateral forums (G20, WTO) regain power.
Winners:
- Global economic growth accelerates.
- Developing countries benefit from integrated trade.
Risks:
- Political resistance in both countries from nationalist factions.
- Requires major trust rebuilding — which seems unlikely in the near term.
CONCLUSION
Right now, the world is drifting between Controlled Decoupling and Cold Peace, with the real risk of Economic Cold War if geopolitical tensions spike. Full cooperation is the least likely path unless both economies take significant damage and need to reset.
There are 3 issues that are central to the US-China tariff war which I call (1) The Taiwan Factor, (2) The India Factor and (3) The RMB Factor. Yet these hardly come up in any talk or discussion on the tariff war. For example, every scenario is shaped by the risk of a Taiwan crisis which could shift quickly into a military war. I will do a follow-up blog on each of these separately.
The final question is what should Singapore do? I will also do a separate blog on this.
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