In these unpredictable times, it is always good to have options and be prepared for how global trends will take shape – all the more so for an open economy like Singapore.
Interestingly, the Ministry of Trade and Industry (MTI) actually has a team that tries to look beyond the horizon and map out the possible futures based on insights from different disciplines.
There’s actually a name for what such people do; it’s called the art of futures thinking. It involves mapping out scenarios that can have an impact on Singapore and what Singapore can do to thrive in such an environment.
Not surprisingly, with the US and China seemingly the only two super powers left and the two largest economies in the world, the MTI had come up with three possible scenarios for the global economy based on possible developments in these two countries and how such developments could affect Singapore.
I have quoted the three scenarios and their implications for Singapore directly from the MTI Futures Group’s paper, The Future of Global Trading Regimes: Three Scenarios, to retain their flavor and essence.
Whether such scenarios will come to pass is beyond anyone guess but they do provide plenty of food for thought and possibly sleepless nights for many people in Singapore.
Even if the trends presented below may seem unlikely to happen, it’s never too late to start thinking about them and preparing for the possibility of their coming.
Scenario 1: Chimerica reborn (both US and China succeed)
The US returns to strength after successfully emerging from recession. Heavy investments in its traditional strengths of entrepreneurship and innovation pay off, re-establishing the US as a high-quality manufacturing and export powerhouse in new growth areas such as green tech, digital media, advanced pharmaceuticals and energy products.
In exchange, China supplies a broad spectrum of consumer and capital goods. Chinese consumption of goods and services increases significantly, driven by a burgeoning urban middle class. Global imbalances gradually decline as world trade enters a long and stable boom.
Although the US no longer holds hegemony, the symbiotic relationship between the two giants dominates global affairs, displacing other international platforms in relevance; G2 replaces the G20 as the premier economic forum. The US and China compete intensely for the lion's share of the world's resources and talent, leaving the non-G2 world subject to price and supply volatility, tariffs and resource export bans.
In this bi-polar world, Singapore's friendship with the two giants requires a delicate balancing act. Resource grabs creates real threats of resource scarcity and periodic price shocks for Singapore. Squeezed out of the Chimerican dynamic at both ends of the value chain, Singapore finds renewed importance in the European Union and Japan as export destinations. Nevertheless, Singapore becomes a safe and neutral ground for the constant stream of new ideas from both Asia and the West to meet and meld.
Scenario 2: China’s World (US stumbles, China succeeds)
In this scenario, China is the centre of global demand in a uni-polar world, as US efforts to restart its export economy falter. The US economic recovery is hampered by stricter immigration laws, massive public debt and the inherent risk of new industries; the US consumer is forced to cut back on spending.
However, the Chinese leadership manages to enact reforms which stimulate China's domestic private consumption and unlock the country's large "savings surplus", further stimulating domestic demand to make up for the decline in US consumption. China's growing urban middle class drives demand for quality-of-life products such as urban planning expertise, clean technologies, wealth management and other premium goods and services.
As a result, China dominates global demand; trading partners re-orientate towards China in order to participate in this growth. China-centric trading and financial platforms emerge, in parallel to existing international frameworks which are now unable to accommodate China's growing demands. A China-Japan-Korea trade core forms, at the expense of Southeast Asia. Likewise, global talent and resources are sucked into China's relentless rise; it soon has the intellectual wherewithal to project thought leadership and determine global discourse.
In this uni-polar world where the centre of gravity has shifted north to East Asia, Singapore's geopolitical and economic space is greatly curtailed. Its value as a hub is likely to diminish; its success depends crucially on its ability to play by the new China-centric rules, and to continue to be attractive — counting on its urban planning, education and public governance expertise — to the Chinese elite and other affluent regional players.
Scenario 3: Bloc-ed World (both US and China stumble)
Bloc-ed World is a multi-polar scenario where both China and the US stumble.
In a prolonged global slowdown, China's domestic demand fails to step up as a viable alternative to lacklustre world markets; instead, China's property and equity asset bubble bursts, stalling the real economy. China enters a period of economic slowdown, leading to unemployment, social tension and political crisis.
With both China and the US in recession, there are no strong global leaders that can move on complex global issues; with no global watchdog, protectionism escalates and it becomes increasingly difficult to maintain a viable, open and consistent global trading system.
International organisations become diffused and ineffective and trade becomes politicised. The cost of trading escalates, causing trade to retreat behind regional blocs. Growth becomes sporadic and scattered, as economic activities restructure along geographical lines to reduce costs. The flow of resources and talent are restricted and often limited to regional blocs or a hub-and-spoke system of distribution. Ideas still travel; in a multi-polar, volatile scenario, a large variety of think-tanks and other sources of intellectual capital flourish in a diverse marketplace of ideas.
In this environment, Singapore finds shelter in ASEAN, producing higher-end goods and services for regional elites. Repatriated income and profits from investments abroad overtake trade as a critical income source for Singapore. By attracting its share of talent and thought leadership, Singapore could become a "horizon scanning base", sniffing out emerging pockets of growth opportunities dispersed around the world.
The full text of this paper is available here.