In Part 1 of the series, we have defined what a tax tariff is and how it affects the economy.
In Part 2, we take into context the possible regional repercussions.
Tax Tariffs in Singapore:
Being a free and open economy, almost all imports in Singapore, with the exception of alcohol, tobacco products and motor vehicles, are duty-free and not subjected to import tax.. To curb smoking, with effect from February 2018, a 10 percent increase in excise duty was imposed on all tobacco products. It is a widely known fact that Singapore is also the country with the highest cost of owning a car. Various fees and taxes are imposed by the government on car owners to limit traffic and pollution.
Tax Tariffs in the Region:
The ASEAN Free Trade Area (AFTA) is a trade bloc agreement by the 10 nation members of Association of Southeast Asian Nations(ASEAN). The primary goal of AFTA is to eliminate tax tariffs between ASEAN countries and attract more foreign direct investment to ASEAN.
ASEAN is home to more than 630 million people, making it the world’s third largest market. AFTA enables the 10 economies to be integrated into a single market and production base.
Protectionism is on the rise in the US and Europe.
The 44th G7 Summit 2018 just concluded on 9th June in La Malbaie, Canada. For the uninitiated, the Group of Seven (G7) is a group of seven countries with the seven largest advanced economies in the world, accounting for nearly half of the world’s GDP.
The G7 Summit 2018 was dubbed as ‘Trump vs. the World’. It is no secret that the current US President, Donald Trump, is a genuine believer of trade tariffs. Trump threatened to stop doing trade with countries “who are being unfair” to the US and using them as a ‘piggy bank’. Canadian PM, Justin Trudeau, is singled out by Trump for ‘stabbing us in the back’ for have a 270% tariff on US dairy products. He vowed to reduce the overall trade deficit with other countries and shall impose tariffs on imports in the name of ‘fair trade’. It is fair to say that the relationship between the allies have soured after the summit.
The abovementioned leave economists around the world shaking their heads. Economists argue that there is no straightforward relationship between a country’s trade balance and its labour-market dynamic or economic well-being.
By imposing tax on imports, it will hurt the export competitiveness of domestic makers.
For example, if a country imposes taxes on steel imports, there would be an increase in costs of the domestic companies who export airplanes and motorcars.
This week, the two of the world’s juggernauts came head-to-head as both exchange threats of retaliatory tariffs. On Monday, President Donald Trump announced that US would impose additional tariffs of 10% on $200 billion worth of product from China. On Tuesday, China’s Commerce Ministry pledges it will retaliate with additional tariffs as well. The rest of the world is watching closely for any knock-on repercussions. Should this escalate to a trade-war, there would be a detrimental effect on the economy, labour market and more volatility on the stock market.
Protectionism is on the rise as trade growth slows. More than half of Singapore companies’ total revenues are derived from foreign markets, according to Morgan Stanley Research’s Global Exposure Guide 2018. In the face of a looming trade war, a falling tide lowers all boats, and Singapore or any other economy may not be spared.
What are your thoughts on the upcoming trade war?