While higher energy costs will fuel inflation, a dramatic rise in US tariffs could hit economic growth by putting Singapore’s exports to the US at risk.
With no end in sight to the spiralling conflict in the Middle East that has sent oil and natural gas prices spiking, the Singapore economy now faces another potential threat: US probes on alleged excess manufacturing capacity and forced-labour practices.
While higher energy costs will fuel inflation, a dramatic rise in US tariffs could hit economic growth by putting Singapore’s exports to the US at risk.
The US trade probe on excess manufacturing, announced on March 11, operates under a law that could allow the Trump administration to impose tariffs as high as 100 per cent or more on specific goods. Singapore is among 16 US trading partners being investigated.
A second probe was launched on March 12 into 60 economies – including Singapore – over failures to take action on forced labour and whether these burden or restrict US trade.
There is likely to be no imminent impact from the probes as it typically takes months to complete such investigations before any new tariffs can be applied. However, a US official has said that the trade probes would be completed by July.
Also, the impact on inflation from the surge in energy prices depends on how long hostilities in the Middle East persist. The longer oil and gas prices stay elevated, the more widespread and deeper the inflationary fallout will be.
But for both the Iran war and the US trade probes, the stakes are high and the outcomes uncertain.
At risk is core inflation in 2026 shooting past the official forecast of 1 per cent to 2 per cent, which is already higher than the 0.7 per cent experienced in 2025.
If the war in the Middle East drags on and the Brent crude oil benchmark remains near US$100 a barrel, the impact of high energy costs will spread to other industries – from food to electronics – and eventually hurt demand as businesses and households pull back spending worldwide.
A global decline in demand – owing to the Iran war or tariffs – would hit Singapore’s export-driven economy, threatening the Ministry of Trade and Industry’s (MTI) forecast for the economy to grow by 2 per cent to 4 per cent in 2026.
Singapore goods headed to the US are currently subject to a 10 per cent tariff, with some exemptions such as those on pharmaceuticals and semiconductors. That rate could rise to 15 per cent in coming months, while the threat to the exemptions remains.
But the tariff applications under Section 301 of the US Trade Act of 1974 authorises the Office of the US Trade Representative (USTR) to impose even higher levies – 25 per cent to 100 per cent or more – on goods from countries considered to be engaging in unfair trade practices.
Singapore may have a way out, as the probe on excess manufacturing appears to be based on data discrepancies.
The MTI said in a statement on March 12 that Singapore is highlighted in the USTR’s Federal Register Notice as having a bilateral trade surplus with the US in both goods and services amounting to US$27 billion (S$34.6 billion) in 2024.
That statement is contrary to the US’ own data.
Figures compiled by the US Bureau of Economic Analysis – a federal agency in the Department of Commerce – show that Singapore had a bilateral goods trade deficit of US$1.7 billion and a services trade deficit of US$25.1 billion with the US in 2024. This amounted to a total trade deficit with the US of about US$27 billion.
The USTR notice also suggested that Singapore has continued to expand manufacturing capacity despite a drop in industrial occupancy rates.
MTI said: “In fact, Singapore’s industrial space occupancy rates are very healthy at around 90 per cent and have been consistently so.”
Singapore has provided the US agency with this information and will engage it to seek further clarification on the trade data and the investigations.
However, some analysts believe that negotiating with President Donald Trump’s administration is a tall order even if facts are on your side.
The Trump administration launched the trade probe in a move to restore the sweeping “reciprocal” tariffs that the US Supreme Court tore down in February.
“This move serves as the administration’s ‘Plan B’ following the Supreme Court’s Feb 20 ruling,” said DBS Bank in a research note.
By pivoting to Section 301, the USTR aims to establish a more durable legal basis for tariffs before the temporary Section 122 global 10 per cent rate – announced after the court ruling – expires in July.
In fact, it is likely that US President Donald Trump will leverage the Section 301 probe findings to justify extending and potentially escalating the global Section 122 tariffs from 10 per cent to 15 per cent.
Trade partners and allies have struggled to negotiate with Mr Trump as his narrative on tariffs keeps shifting.
The war with Iran is itself a puzzle.
There have been mixed messages on why it was the right time to launch the joint US-Israeli strike, what the goals are and what the timeline is.
In the early days of the conflict, Mr Trump suggested that Iran would capitulate quickly. He then said it may take weeks, and more recently he has walked back those comments to say it would be over shortly.
However, Iran’s newly appointed supreme leader has vowed to keep the vital Strait of Hormuz waterway closed to pressure adversaries and said he will open new fronts in the conflict if the US and Israeli attacks continue.
The statement drove Brent back to above US$100 a barrel on March 13, and it seems to be holding just below that level now.
Higher crude prices are also driving the cost of producing refined products, such as petrol, diesel and jet fuel – making transport and logistics more expensive. The higher cost of transport, along with rising electricity tariffs, will raise the cost of producing all kinds of goods.
Minister of State for Trade and Industry Alvin Tan noted the impact to Singapore’s trade sector if passage through the Strait of Hormuz is disrupted and ships have to take the long way around the Cape of Good Hope.
“This means higher costs, longer wait times and messy schedules. For our wholesale trade sector – which contributes about 20 per cent of our nominal GDP and involves over 50,000 firms, these storms break supply chains and change prices overnight,” he said at a Singapore Business Federation event on March 13.
“Whether you trade in commodities, industrial goods or consumer products, you are feeling the spray from these waves,” he said.
For consumers, the Iran war may inflict a more imminent and direct blow in the form of higher food prices.
The threat of food inflation comes from two effects of the conflict: the doubling of natural gas prices and the disruption to fertiliser shipments through the Strait of Hormuz.
Natural gas is the primary feedstock of the global nitrogen fertiliser industry, with approximately 70 per cent of global ammonia production – the foundation for all nitrogen-based fertilisers – relying on it.
The Gulf region is also a key producer not only of liquefied natural gas and oil products but also of fertiliser.
About one-third of global seaborne trade in fertilisers typically passes through the Strait of Hormuz, with the disruptions hitting during the spring planting season.
Mr Noah Gordon of the Carnegie Endowment for International Peace think-tank said: “This is where the second-order effects of a supply chain crisis appear, just as they did during Russia’s invasion of Ukraine in 2022, which sent fertiliser prices soaring.”
He said fertiliser producers worldwide are either cutting back production or simply shutting down their plants with the price of urea, the most widely traded fertiliser, having shot up some 30 per cent.
As fertiliser prices rise, they push agricultural costs higher. The resulting food inflation will hurt primarily the most vulnerable part of the population.
“Consumers around the world are already beginning to see higher prices for their gasoline and plane tickets. The more worrisome costs for the most vulnerable – those at the grocery store – are yet to come,” said Mr Gordon.