Sunday, 18 December 2016

Why Is Protectionism A Concern For Singapore?

After the election of Donald Trump as US President, it has been said that his protectionist stance is bad for open, trade-reliant economies like Singapore. But what is trade? My idea of trade has stagnated since the secondary school days, when we learnt that Singapore had a thriving entrepot business due to its strategic location at the southern tip of the Straits of Malacca. Thus, if it is just the port business that is affected by protectionism, then it is not a very big deal, isn't it?

However, on further thoughts, trade is not just about the port business. When we buy goods from the supermarket or shop online from Amazon or Taobao, that is trade. When we watch the Premier League on TV, that is also trade. As investors, when our companies such as Keppel Corp builds and delivers an oil rig to the Gulf of Mexico, that is trade. And when SIA flies passengers from New York, it is also trade. Thus, trade is all over the place. It is what enables us to consume goods and services that Singapore does not produce and sell goods and services that Singapore produces. The smaller the domestic market is, the more reliant we are on trade with other countries.

The figure below shows the correlation between Non-Oil Domestic Exports (NODX) and GDP. The correlation between NODX and GDP is 0.52. It illustrates the importance of trade to GDP in Singapore.

Correlation between NODX and GDP

What would happen if there is no trade with external countries, as a result of protectionism and/or trade wars? In the extreme case, we would not have food, enough water, and power (because no natural gas), not to mention creature comforts like the latest iPhone or watching the Premier League. Keppel Corp could only build oil rigs for drilling oil in Singapore waters and SIA could only fly from Changi Airport to Seletar Airport! Very soon, these companies would go out of business and all the staff that work for these companies and supporting industries would be jobless! Thus, although we seldom think about it, trade is essential for the survival of Singapore. When there are threats of protectionism and/or trade wars, perhaps we should pay more attention to them, because our survival depends on free trade!


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