Financial services giant Nomura has warned of the potential economic and trade consequences for Singapore if Donald Trump is elected United States president in November.
In its Asia Special Report, Nomura said any increase in trade protectionism globally would likely have a negative impact on the Republic's economic prospects.
It has forecast economic growth for Singapore of 1.1 per cent this year and 0.7 per cent next year.
"Increased global economic uncertainty would exacerbate the impact on domestic investment spending which will add to a deteriorating medium-term outlook," Nomura said in its report.
It also said Singapore's manufacturing and services sectors would be at risk.
A Trump presidency could "bring with it great uncertainty over the direction of the world's largest economy", said Nomura.
It could also lead to the restructuring of trade deals with China and harm Singapore's entrepot status, Nomura pointed out.
Singapore handles trade crossflows to and from China and the US, and Nomura views Mr Trump's protectionist stand as a factor which could dampen Singapore's growth.
The Republic's exposure to the US is substantial as it accounts for about 10 per cent of non-oil domestic exports (Nodx), 5.5 per cent of re-exports and 11 per cent of services exports. In addition, about 14 per cent of both Singapore's re-exports and Nodx also go to China.
Nomura sees a high possibility of Mr Trump pursuing more aggressive trade policies towards China by imposing punitive tariffs on certain Chinese imports, including textiles and steel.
Last year, 16 per cent of China's textiles, 21 per cent of rubber and 13 per cent of base metals were exported to the US.
"Trade frictions could extend to higher value-added products as well, such as mechanical and electrical products, which comprise over 40 per cent of China's total export to the US," Nomura pointed out.
"A Trump presidency may lead to a smaller trade surplus and more capital outflows due to increased trade frictions and geopolitical risks in the region.
However, we believe the impact should be limited as China and the US have more common interests than conflicts in the region."
Nomura noted that China is a major exporter to the US as well as an importer of goods from the US.
About 8 per cent of US goods were destined for China last year.
The mainland may be less vulnerable to external shocks because it is relying more on domestic demand, based on the country's declining trade dependence ratio - from 65 per cent of its gross domestic product in 2005 to 37 per cent of GDP in 2015.
Nomura also warned that Asia would suffer should the US turn more inward-looking.
Home to many of the world's most trade-oriented economies, Asia hosts the world's largest manufacturing workshop.
Regional economies are buttressed by a web of free trade agreements and vertical supply chains.
"If a President Trump were to follow through on his campaign pledges, rising US protectionism would likely be met by retaliatory counter-measures, notably from China," Nomura warned.
Asia, with its cross-country vertical supply chain - and with China at the vanguard as the assembler of finished goods - would be vulnerable to trade disruptions and cost pressures, which could see protectionism spread and multinational companies pull out, it said.
In the worst case, a trade war could fan geopolitical tensions and stymie regional policy co-ordination, leading to major slumps in Asian exports and investment, Nomura stated.
OCBC, in its forecast, said Mr Trump's "loaded posturing on his anti-trade and anti-globalisation platform" could make Asian policy makers fret and financial markets tremble as election day nears.
This article was first published on August 8, 2016.
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