The Uncertain World of Today in Which We Reside – By Dr Harold Gunatillake
Navigating Economic Challenges: Strategic Interventions for Developing Nations Confronted with Elevated Tariff Barriers
The world is changing after Liberation Day- Trump’s announcement on the new tariff brings an interesting shift in our economic landscape, inviting us to consider its potential impacts. A timely update encourages us to stay informed and engaged with these developments. Imports from other countries will undoubtedly mark a seismic change in the global order.
The transformation of the global Order, the era of rules-based globalisation and free trade, is over, and we are entering a new phase that will disastrously affect world trade.
The US has become the bedrock for the world’s free market economies.
A free market is a vibrant space where the laws of supply and demand form the foundation of our economic system without government intervention. Free markets thrive on voluntary exchange, where buyers and sellers trade goods and services joyfully. It’s like a global trading system embraced by clear rules and norms that everyone can rely on.
This is commonly known as the WTO system, which works alongside the Harmonized System to complement the Members’ Schedules. It reinforces the vital principle that the product’s specific characteristics, when presented for classification at the border, determine its classification and, as a result, the customs duty that applies.
The PM of Singapore, who was talking on this subject, said that the WTO system brought unprecedented stability and prosperity to the world and the US, but reforms are needed.
The speaker articulated that the current actions undertaken by the United States should not be characterised as reforms; instead, they constitute a repudiation of the entire system it had previously established. The new strategy of implementing reciprocal tariffs on a country-by-country basis represents a complete departure from the framework of the World Trade Organization (WTO). The United States has categorised Singapore within the lowest base tier, imposing a tariff of 10%. While the immediate impact on the United States may be limited, the potential ramifications could be broader and more profound if other nations decide to emulate the U.S. approach of abandoning the WTO and trading solely on their preferred terms individually. Such a course of action could create significant challenges for all nations, particularly for smaller countries like Singapore, which risks being marginalised and sidelined in the global marketplace. Furthermore, a robust global reaction to America’s tariffs is anticipated. Although Singapore has elected not to impose retaliatory tariffs, it is plausible that other nations may not exercise the same restraint. The probability of an all-out global trade conflict is increasing, and the implications of elevated tariffs, combined with the uncertainty regarding the responses of other nations, will likely exert considerable pressure on the global economy. International trade and investments are expected to decline, leading to a deceleration of global growth; Singapore, due to its heavy reliance on trade, will likely experience a more severe impact than others. The last time the world faced a comparable scenario was in the 1930s when trade wars escalated into armed conflict, culminating in the Second World War. While it is impossible to predict the trajectory of the current situation in the forthcoming months or years, we must remain cognizant of the escalating dangers on the global stage. International institutions are diminishing in strength, and established norms are gradually eroding. An increasing number of countries are likely to act according to narrow self-interests, employing force or pressure to achieve their objectives. This presents a stark reality in our contemporary world. We must remain vigilant, enhance our capabilities, and strengthen our partnerships with like-minded nations. Fortunately, we are better prepared than many other countries, owing to our unity and resolve; however, we should brace ourselves for impending challenges. The global tranquility and stability we once experienced are unlikely to return shortly.
We cannot assume that the frameworks that have historically protected smaller states will remain intact. I share this information with you to ensure we are all mentally prepared and not caught off guard. Let us not succumb to complacency; the risks are real, and the stakes are high. The path ahead may prove more arduous, but if we remain resolute and united, Singapore will maintain its standing in this troubled world.
Guardian (Wed 2 April 2025) describes with the heading “Perilous and Chaotic, Trump’s ‘liberation day’ endangers the world’s broken economy- and him (reported by Martin Kettle)
He reports, “It would be ‘liberation day’ in the US, the White House announced. Well, we shall see. Yet even if one puts the noise and nastiness that accompany a Donald Trump announcement to one side – in this case tonight’s pronouncement that there will be an executive order announcing “reciprocal tariffs on countries throughout the world”, a 10% tariff on the UK and 20% on the EU – the significance of the theatre is hard to miss. Whether they presage the US’s liberation or instead the disintegration of the global trading order, Trump’s tariffs add up to an attempt to transform a badly broken economic model. And that is something that affects us all”.
Once governed by the principles of the World Trade Organization (WTO), the global trade landscape has been upended by the imposition of high tariffs on goods imported into the United States. This shift, spearheaded by President Trump, has disrupted the U.S. economy and triggered a ripple effect worldwide, culminating in a trade war. The consequences are dire for smaller nations like Singapore, whose economies are entirely trade-dependent.
Although primarily an agricultural country, Sri Lanka faces significant challenges due to its reliance on exports to the U.S., including garments, apparel, large tires, and technology.
Once governed by the principles of the World Trade Organization (WTO) explained above, the global trade landscape has been upended by the imposition of high tariffs on goods imported into the United States. This shift, spearheaded by President Trump, has disrupted the U.S. economy and triggered a ripple effect worldwide, culminating in a trade war. The consequences are dire for smaller nations like Singapore, whose economies are entirely trade-dependent. Although primarily an agricultural country, Sri Lanka faces significant challenges due to its reliance on exports to the U.S., including garments, apparel, large tires, and technology.
To reduce the challenges these tariffs bring, developing nations can embrace a variety of strategies:
Diversification of Export Markets: Countries such as Sri Lanka and Singapore must proactively pursue alternative markets to diminish their reliance on the United States. This endeavour may entail fortifying trade relationships with regional partners or investigating potential opportunities within emerging markets.
Enhancing Value Addition in Exports: Through investments in technology and innovation, nations can augment the value of their exports, thereby increasing their global competitiveness. For example, Sri Lanka may consider concentrating on the production of high-end apparel or advanced agricultural products.
Regional Trade Agreements: Participation in regional trade agreements may serve as a buffer against global trade disruptions. For instance, Sri Lanka might capitalise on its geographical position within South Asia to enhance trade relations with neighboring countries.
Government Support and Subsidies: Government entities can assume a crucial role by providing subsidies or incentives to sectors most adversely impacted by tariffs. Such assistance can enable businesses to navigate challenges and maintain their competitiveness.
Enhancing Domestic Industries: Fortifying domestic industries can mitigate the effects of tariffs by reducing import reliance. This may involve investing in local technology manufacturing or improving agricultural productivity in Sri Lanka.
Advocacy and Diplomacy: It is imperative that developing nations collaboratively advocate for equitable trade practices on international platforms. By presenting a united front, these nations can effectively promote reforms that address the inequities inherent in the current system.
Although high tariffs present significant challenges, they offer developing nations an excellent opportunity to reconsider their trade strategies and strengthen their economies. By embracing these changes, countries such as Sri Lanka and Singapore can skillfully navigate the ups and downs of global trade and come out even stronger.
Further development
- China retaliated with 84% tariffs on US goods as the global market sank.
- Musk vs Navarro: Is the Trump team divided on tariffs? Elon Musk publicly clashes with Trump’s trade adviser, Peter Navarro, calling for a zero-tariff deal with Europe as the stock markets crash.
- United States President Donald Trump has doubled down on his tariffs plan, even as markets crash worldwide.
Analysts say that Trump is open to making deals, but his disdain for trade deficits challenges compromise.
