Singapore: Energy Costs & US Tariffs Threaten Economy

Singapore’s economy faces potential headwinds from both escalating conflict in the Middle East and newly launched U.S. trade probes into alleged excess manufacturing capacity and forced-labor practices, raising concerns about inflation and export risks.

U.S. Trade Probes Pose Economic Threat

Higher energy costs are expected to fuel inflation, while a significant increase in U.S. tariffs could hinder economic growth by jeopardizing Singapore’s exports to the United States. The U.S. trade probe on excess manufacturing, announced on March 11, could lead to tariffs as high as 100 percent or more on specific goods, with Singapore among 16 trading partners under investigation.

A second probe, launched on March 12, investigates 60 economies – including Singapore – regarding failures to address forced labor and its impact on U.S. trade. While the immediate impact of the probes is unlikely, as investigations typically take months, a U.S. official indicated completion by July.

Impact of Middle East Conflict and Energy Prices

The duration of hostilities in the Middle East will determine the impact on inflation. Prolonged elevated oil and gas prices could lead to widespread and deeper inflationary effects. Core inflation in 2026 is at risk of exceeding the official forecast of 1 percent to 2 percent, already higher than the 0.7 percent experienced in 2025.

A continued war in the Middle East, with Brent crude oil near US$100 a barrel, could affect industries from food to electronics, potentially reducing demand as businesses and households cut spending. A global decline in demand, stemming from the war or tariffs, would threaten the Ministry of Trade and Industry’s (MTI) 2026 growth forecast of 2 percent to 4 percent.

Tariff Concerns and Data Discrepancies

Singaporean goods currently face a 10 percent tariff to the U.S., with exemptions for pharmaceuticals and semiconductors. This rate could rise to 15 percent in the coming months, with the future of existing exemptions uncertain. The U.S. Trade Act of 1974 allows for levies of 25 percent to 100 percent or more on goods from countries deemed to engage in unfair trade practices.

However, Singapore may have grounds for dispute, as the probe on excess manufacturing appears to be based on data discrepancies. The MTI stated that U.S. data indicates a bilateral trade deficit of US$27 billion with Singapore in 2024, while the U.S. Bureau of Economic Analysis reports a US$1.7 billion goods trade deficit and a US$25.1 billion services trade deficit, totaling a US$27 billion overall deficit.

The USTR notice also suggested Singapore has expanded manufacturing capacity despite a drop in industrial occupancy rates, a claim the MTI refuted, stating occupancy rates are consistently around 90 percent. Singapore has provided this information to the USTR and will seek clarification on the trade data and investigations.

Challenges in Negotiation

Analysts suggest negotiating with the current U.S. administration may be difficult, even with factual support. The trade probe is seen as a response to a recent Supreme Court ruling and a way to establish a legal basis for tariffs before temporary rates expire in July. President Trump may leverage the probe findings to extend and potentially increase the global tariffs from 10 percent to 15 percent.

The conflict in Iran presents its own uncertainties, with mixed messages regarding its goals and timeline. Iran’s supreme leader has vowed to close the Strait of Hormuz, driving Brent crude back above US$100 a barrel on March 13.

Impact on Trade and Food Prices

Higher crude prices are increasing the cost of producing refined products, impacting transport and logistics. Disruption to passage through the Strait of Hormuz could force ships to take longer routes, increasing costs and delaying schedules. Minister of State for Trade and Industry Alvin Tan noted the potential impact on Singapore’s wholesale trade sector, which contributes about 20 percent of the nation’s nominal GDP.

The war in Iran may also lead to higher food prices due to the doubling of natural gas prices and disruptions to fertilizer shipments through the Strait of Hormuz. Natural gas is a key component in nitrogen fertilizer production, and the Gulf region is a major producer of both natural gas, oil, and fertilizer. Approximately one-third of global seaborne fertilizer trade passes through the Strait of Hormuz.

Fertilizer producers are cutting back or shutting down production, causing urea prices to rise by 30 percent, which will ultimately increase agricultural costs and impact consumers, particularly the most vulnerable populations.