Singapore shares fell in morning trade on Tuesday as trade-related plays took a hit from the Trump administration’s move to impose further tariffs on imports from China.
The Straits Times Index was down 0.63 percent at 3121.63 at 11:09 A.M. SGT. The Singapore dollar has strengthened slightly, with the dollar/Sing at 1.3712 at 11:41 A.M. SGT, compared with as much as 1.3753 earlier in the session.
Among index components, banks were lower, with DBS off 1.13 percent at 11:25 A.M. SGT, while UOB was down 0.81 percent and OCBC shed 0.18 percent. Singapore’s banks have exposure to trade finance.
HPH Trust was flat at US$0.24 at 11:24 A.M. SGT, off an earlier low of US$0.235. Analysts have previously noted that the trust’s ports may not be overly exposed to direct trade with the U.S.
Venture shares were off 1.27 percent at S$16.30 at 11:32 A.M. SGT, but analysts have previously noted most of its production facilities are located in Malaysia, not China.
Outside of the index, shares potentially exposed to trade tensions were lower. Hi-P, which has manufacturing facilities on the mainland, was off 3.37 percent at S$0.86 at 11:30 A.M. SGT, while Valuetronics was down 3.76 percent at S$0.64.
Trump escalates trade war
U.S. President Trump escalated his trade war on China on Monday U.S. time, with plans to impose 10 percent tariffs on US$200 billion worth of imports from China and warned that if China retaliates, he will impose further tariffs on another US$267 billion in imports, effectively all of China’s goods exports to the U.S.
The tariffs will start on 24 September and will rise to 25 percent by the end of the year, Reuters reported, citing a senior administration official.
The Washington Post reported that Trump’s blustering likely means that China must also take a hard-line stance to save face. China has previously threatened to retaliate and has already retaliated for previously imposed tariffs.
Tariffs have put the U.S. in a very strong bargaining position, with Billions of Dollars, and Jobs, flowing into our Country – and yet cost increases have thus far been almost unnoticeable. If countries will not make fair deals with us, they will be “Tariffed!”
— Donald J. Trump (@realDonaldTrump) September 17, 2018
A regional hit?
Rajiv Biswas, Asia Pacific chief economist at IHS Markit, said in a note on Tuesday that with the initial tariff rate at 10 percent, Chinese exporters will have some cover because the Chinese yuan has fallen from 6.27 against the U.S. dollar in February to 6.87 this week.
But he added that if there’s no deal between the U.S. and China and the rate rises to 25 percent, the impact will be much larger and would spread regionally. China manufacturing has already seen declines in exports orders over the past few months, he noted.
“A 25 percent tariff rate on US$200 billion of Chinese products would also cause significant collateral damage to other Asian economies that are part of the East Asian manufacturing supply chain, since around one-third of the value added in Chinese exports consists of imported foreign raw materials and intermediate goods, much of which is sourced from East Asian economies,” he said.
Biswas noted, however, that some production could be diverted from China, potentially heading to Vietnam, which already produces low-end goods for the U.S. market.