Singapore’s Manufacturing Slows Amid Looming US Trade War Concerns

Singapore’s manufacturing sector, a critical pillar of its export-driven economy, is showing signs of strain as global trade tensions escalate. The purchasing managers’ index (PMI), a key indicator of factory activity, dipped by 0.2 points in January to 50.9, down from December’s 51.1, according to data released by the Singapore Institute of Purchasing and Materials Management on 3 February. While a reading above 50 still signals expansion, the slowdown—coupled with a 0.3-point drop in the electronics PMI to 51.1—has raised concerns about the city-state’s economic outlook amid fears of a US-led trade war.

The timing of this dip is particularly significant. US President Donald Trump’s recently announced tariffs on major trading partners, including China, Canada, and Mexico, have sent shockwaves through global supply chains. For Singapore, a small, open economy deeply integrated into international trade networks, the ripple effects could be profound. Economists warn that while the city-state may not be directly targeted by these tariffs, its role as a regional hub for manufacturing and logistics leaves it vulnerable to indirect impacts.

The broader Asian manufacturing landscape mirrors Singapore’s challenges. Factory activity across much of ASEAN and North Asia, including China and Taiwan, has decelerated, with Malaysia, Thailand, and Vietnam likely to remain in contraction. Only South Korea and Indonesia have shown signs of faster growth, offering a sliver of optimism in an otherwise gloomy regional outlook.

For Singapore, the January PMI data marks the 17th consecutive month of expansion in overall manufacturing and the 15th for electronics, a sector that remains the primary driver of growth. However, the slowdown in sub-indexes—particularly the contraction in stocks of supplier deliveries—hints at potential supply chain disruptions. Meanwhile, increases in stocks of input purchases and finished goods could signal preemptive hoarding by manufacturers bracing for tariff-related uncertainties, according to OCBC Bank chief economist Selena Ling.

“The implications of Trump’s tariffs are significant because their scope is broader than under his first administration” Ms Ling noted. “They have the potential to disrupt highly integrated supply chains, such as those in the auto and energy sectors, at least in the short term.” She added that Singapore, despite its free trade agreement with the US, is not immune to the risks of an escalating trade war.

Beyond Tariffs: Seasonal and Structural Headwinds

The PMI decline cannot be attributed solely to US policy shifts. Experts point to seasonal factors, such as the Chinese New Year holiday in January, which reduced working days across the region. Additionally, manufacturers may have ramped up output towards the end of 2024 in anticipation of tariff announcements, creating a temporary surge that has now begun to wane. Maybank economist Brian Lee suggested that the slowdown “could reflect a lull during the Chinese New Year holidays, but it might also be an early signal that front-loading momentum is starting to ebb.”

Structural challenges further compound the issue. Slower growth in major economies like China, Europe, and the US has dampened global demand, directly impacting export-reliant nations like Singapore. As a trade-dependent economy, the city-state often serves as a bellwether for broader economic trends, making its PMI figures a closely watched indicator.

Economic Forecasts Under Scrutiny

Economists are divided on the long-term implications of these developments for Singapore’s economy. Ms Ling cautioned that it might be too premature to revise OCBC’s 2025 GDP growth forecast of 2.2%, despite a cloudier external trading environment. In contrast, Mr Lee of Maybank projects a moderation to 2.6% growth this year, down from a flash estimate of 4% in 2024, citing the combined pressures of tariffs and softening demand.

Associate Professor Goh Puay Guan of NUS Business School’s Department of Analytics and Operations highlighted the need to monitor how Trump’s tariffs unfold and whether regional trade can adapt. “The trends to watch in the coming months are whether these tariffs have a tangible impact and how much of the regional trade continues to grow” he said.

DBS Bank economist Chua Han Teng echoed this call for vigilance, warning of medium-term challenges and downside risks from potential geopolitical tensions and a wider global trade war under a second Trump administration. For highly trade-dependent Asian economies like Singapore, such risks could translate into reduced export volumes, disrupted supply chains, and heightened economic uncertainty.

Singapore’s Strategic Position

Despite these headwinds, Singapore’s strategic advantages—its robust infrastructure, business-friendly policies, and status as a regional financial hub—offer some buffer against external shocks. The city-state has navigated previous trade disruptions by diversifying its markets and strengthening intra-Asian trade ties, a strategy that could prove vital in the face of US-China tensions. However, the scale and scope of the current tariff regime, described by Ms Ling as broader than Trump 1.0, pose a unique challenge.

The electronics sector, in particular, remains a critical area of focus. As Singapore’s largest manufacturing segment, its PMI slowdown—though still in expansionary territory at 51.1—underscores the sector’s vulnerability to global demand fluctuations and supply chain bottlenecks. With electronics playing a central role in Singapore’s export mix, any sustained downturn could have cascading effects on employment, investment, and overall economic confidence.

Broader Implications for ASEAN

Singapore’s challenges are emblematic of broader pressures facing the ASEAN region. As US tariffs target China, a key economic partner for many Southeast Asian nations, the region’s export-driven economies face the dual threat of reduced demand from China and potential disruptions to integrated supply chains. Countries like Vietnam, Thailand, and Malaysia, already grappling with contracting factory activity, may find their recovery delayed if trade tensions escalate further.

For Singapore, the indirect effects of these tariffs—through reduced regional trade and investment—could outweigh any direct impacts. The city-state’s role as a transshipment hub means that any slowdown in regional trade flows could disproportionately affect its logistics and port sectors, both of which are linchpins of its economy.

As the full ramifications of Trump’s tariffs remain unclear, Singaporean policymakers and businesses are likely to adopt a wait-and-see approach while preparing contingency measures. Economists stress the importance of monitoring key indicators, including future PMI readings, export data, and regional trade volumes, to gauge the extent of the impact.

If the tariffs lead to prolonged disruptions, Singapore may need to accelerate efforts to diversify its export markets and strengthen domestic resilience. Initiatives to boost innovation, upskill the workforce, and deepen ties with non-traditional trading partners could help mitigate the risks of over-reliance on any single market.

For now, the January PMI dip serves as a cautionary signal rather than a definitive downturn. With 17 months of manufacturing expansion behind it, Singapore retains a strong foundation to weather short-term turbulence. However, the spectre of a global trade war looms large, casting uncertainty over the city-state’s economic trajectory in 2025.

In the words of Mr Chua of DBS Bank, the coming months will test the resilience of trade-dependent Asian economies. For Singapore, navigating this uncertain landscape will require a delicate balance of strategic foresight and adaptive policymaking—qualities that have long defined its approach to global challenges.