By Chris Kuan
Most commentators in the local and foreign press seems certain that Lee Hsien Loong’s recent warning of the possible demise of Trans-Pacific Partnership (TPP) as frustration and exasperation over the US election campaign. Perhaps there is a bit of desperation in it.
That there is a backlash against free trade and globalisation is without doubt. For that we have to thank the Asian model of state directed mercantilist capitalism. It is good for lifting countries out of poverty but at some point if a large enough economy pursued it aggressively enough like China did in the last 20 years. it will hollow out the export markets on which Asian mercantilism is dependent: the very Western countries where the backlash is occurring.
But yet by themselves the practitioners of these mercantilist economics do not yet have the wealth and sophistication to replace Western markets. China is not daft to the pitfalls; hence the plans to re-balance the economy.
Singapore, on the contrary, did not seems able to generate enough internal demand to rebalance the economy to a certain degree from an over-reliance on trade despite the large increase in population. This is likely due to high costs and lack of sufficient social safety net which caused excessive savings by the resident population while the non-resident population generally of lower wages are even more affected by the high costs and are savers in any case.
Hence, the importance to the government of ratifying TPP. The idea is freer access to markets – the consequences of opening up the economy affects Singapore far less than others because Singapore is already very open, what with an English speaking business environment and easy access to foreign workers of various skill levels.
The danger to Singapore is the backlash may cause a drop in global trade of a large enough extent that things start to unravel. To an extraordinary extent Singapore’s household wealth and the government’s fiscal position are tied up in real estate. Global trade is needed to hold up real estate prices through demand for offices and industrial land and the influx of foreign workers to keep up demand for housing.
A collapse in global trade will have dire consequences – not only will the value of goods traded fall, affecting the GDP (and we do not have the internal demand to help cushion the fall) but a large enough consequential fall in the demand for real estate is very likely to be deflationary.
Given the intertwining of real estate to retirement and healthcare propositions and to the government’s fiscal position, the resulting deflationary impact could make Japan’s own deflationary spiral seems like child’s play. If it comes to pass, then those trade-offs which the government denies ever existed or down played will come home to roost.
Hence I thought there is a hint of desperation in the PM’s recent hyperactivity.