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[SINGAPORE] US President Donald Trump roiled global markets with his “Liberation Day” tariffs. On Wednesday (Apr 2), he announced a 10 per cent baseline tax on imports and higher tariff rates on dozens of nations that run trade surpluses with the US.

The president had promised during his election campaign to raise US taxes on foreign goods, to narrow the trade gap with countries he accuses of imposing unfair monetary and non-dollar tariffs on the US.

Last year, the US goods trade deficit hit a peak of US$1.2 trillion. Its total annual trade deficit across goods and services was over US$900 billion. Its biggest goods trade deficits were with China (US$295 billion), the European Union (US$235 billion), Mexico (US$170 billion), Vietnam (US$120 billion) and Ireland (US$87 billion).

What are tariffs?

Tariffs are taxes imposed on imported goods and are used to:

• generate revenue for governments;

• correct trade imbalances;

• protect local industries by making imports more expensive; and

• in Trump’s case, tariffs are also used as a foreign policy tool.

On Wednesday, the US president announced “reciprocal tariffs” on imports from about 60 nations, in addition to a 10 per cent across-the-board tax applied to all countries’ imports to the US.

The baseline tariff will take effect on Apr 5, while the reciprocal tariffs will roll out on Apr 9. The new levies stack on top of existing tariffs, such as the 20 per cent fentanyl-related tax Trump previously imposed on China goods.

The formula for the rates

Trump said the tariff rate for each country was based on the monetary levies it charges on US imports, as well as non-monetary trade barriers such as regulations that make it difficult for American products to enter those markets. These could include value-added sales tax like the goods and services tax.

For example, the US took issue with Vietnam’s import bans on certain goods; regulations for pharmaceuticals, medical devices and information technology products; food safety laws; and failure to deter counterfeiting and piracy, among others.

However, the US Trade Representative said the “discounted rate” was arrived at by dividing a country’s trade surplus with the US by its total exports (based on data from the US Census Bureau for 2024), then dividing it further by 2. The result would be the “discounted reciprocal rate”.

Using China as an example: it had a trade surplus of US$295 billion with the US last year on total exports of US$438 billion — a ratio of 68 per cent. Dividing it by two would give a tariff rate of 34 per cent.

This method seems to apply to many countries including Japan and the European Union, but not all. It also does not appear to factor in both tariffs and non-tariff barriers, including sales taxes, even though Trump’s board displayed the rates under a category titled “Tariffs charged to the US including currency manipulation and trade barriers.”

Global impact

Markets across the world tanked on the tariff news, with analysts warning of more pain to come, both from further stock sell-offs and impact in the real economy.

Tariffs raise the prices for the importing country and, over time, shrink trade between the importing and exporting country. During his first term as US president, Trump imposed various tariffs on China products including steel, aluminium and engines. Within five years, China went from supplying 20 per cent of the goods the US imported before Trump’s first trade war in 2018 to about only 14 per cent of US imports in 2023.

As they jack up prices of imports immediately, inflation is often the first consequence of increased tariffs, hence the flight to inflation hedges such as gold.

In the longer term,

• some exporters will hike prices or under-declare values to mitigate the taxes;

• affected countries may impose retaliatory tariffs, further fuelling inflation;

• global trade and supply chains are disturbed as companies evade the tariffs by going through third countries; and

• countries adjust their industry focus as tariffs change their comparative advantages in various goods and services.

Asean impact

Among Asean and Asian countries, Singapore was relatively not the worst off. Consequently, Singapore stocks were mildly down on Thursday morning while shares in Japan and Hong Kong were hammered.

Still, Minister for Trade and Industry Gan Kim Yong said Singapore may downgrade its full-year growth forecast because of Trump’s latest moves. He added that the country will engage the US to address its concerns. While Singapore has “recourse” under the US-Singapore FTA to take countermeasures and seek dispute resolution, it has decided not to do so, he said.

Along with others such as Australia, New Zealand, Brazil, Turkey, Argentina and the UK, the Republic faces only the 10 per cent baseline tariff.

The US has long enjoyed a trade surplus with Singapore as the latter imports more than it exports to the US.

Under the US-Singapore FTA, in effect since 2004, Singapore applies zero tariffs on US products, as long as they qualify as originating goods under the FTA’s rules of origin. But some see Singapore’s GST, which applies to both imported and domestic goods, as a value-added tax treated as a trade barrier by the US.

According to the US Trade Repesentative office, US goods trade surplus with Singapore was US$2.8 billion in 2024, an 84.8 per cent jump over 2023. Total bilateral goods trade totalled US$89 billion in 2024. US goods exports to Singapore were US$46 billion, up 8.4 per cent from 2023. US goods imports from Singapore were US$43 billion in 2024, up 5.6 per cent.

Some of Singapore’s top exports to the US include machinery, pharmaceuticals, edible preparations, chemical products and plastics.

In contrast to Singapore’s 10 per cent baseline tariff, its Asean neighbours were slapped with much harsher reciprocal rates. They include Vietnam (46 per cent), Thailand (36 per cent), Indonesia (32 per cent) and Malaysia (24 per cent). In terms of surpluses with the US, Vietnam was high on the list next to the big economies that the US trades with, including China, Japan and Canada.

The 46 per cent levy is a big threat to Vietnam’s status of being a foreign direct investment (FDI) darling as it would slash the country’s cost advantage over China.

Among the few Asian nations hit with tariffs under 30 per cent were allies Japan (24 per cent) and South Korea (25 per cent). India, which Trump named as imposing some of the steepest duties on US-made goods, faces a 26 per cent tariff.

Canada and Mexico are excluded from the reciprocal tariff regime, while the EU faces a 20 per cent tariff and Australia, 10 per cent.