Foreign Trade

Trade in goods and services was Singapore's life blood as truly in 1989 as it was in the early twentieth century or a century earlier when the British East India Company first began business there. Trade, along with domestic savings and foreign investment, remained key to the country's growth. Singapore traditionally had a merchandise-trade balance deficit (in part at least because food was imported), which it customarily offset with a surplus on the services account. It was one of the world's few countries where total international trade (domestic exports and reexports plus imports) was greater than total GDP. In 1988 trade (S$167.3 billion) was more than three times GDP (S$48 billion), and two-thirds of the goods and services Singapore produced were exported.

Singapore, however, was more than simply a trade and manufacturing center in the late 1980s. Trade and manufacturing were closely tied to the country's expanding business services and international financial market; each enhanced the other. In addition to the more than 650 multinational companies that had set up manufacturing plants and technical support facilities, several thousand international financial institutions, service companies, and trading firms also maintained a presence in Singapore. The increasing internationalization of the economy and the continuing centrality of external trade meant that world trade fluctuations and the state of the global economy were significant factors-- largely out of the country's direct control--in what happened to Singapore's trade and wider economy.

As a British colony in the nineteenth and early twentieth centuries, Singapore was an entrepôt for the exchange of raw materials from Southeast Asia--mainly present-day Indonesia and Malaysia--for European merchandise. Newly independent Singapore's decision in 1965 to emphasize industrial development and the growing success of that plan gradually resulted in a significant change in the nature of trade. By the mid-1970s, the proportion of reexports and domestic exports had been roughly reversed, with reexports accounting for less than 41 percent.

In the 1980s, the somewhat diminished entrepôt trade remained important, and Singapore continued to act as a regional processing and distribution center. Reexports' share of total exports averaged 35 percent from 1980 to 1987. Although primary commodities (crude rubber, nonferrous metals, and to a lesser extent palm and coconut oil) were still a factor in trading activities, machinery and transportation equipment dominated. Singapore also served as a back door to trade with Asian communist countries for third countries, such as Indonesia.

Between 1980 and 1984, total exports grew an average of 5.5 percent per year. The strongest impetus came from the newer electrical and electronics industries. The trade deficit declined steadily after 1982, reflecting lower commodity prices paid to foreign producers, greater levels of internal efficiency, and industrial upgrading. In 1985, however, total exports decreased by 2.26 percent. Higher value-added exports declined, both as a function of weaker demand and a worldwide saturation in many areas, such as computer peripherals. Petroleum exports, still a major sector, virtually stagnated.

Trade, along with the rest of the economy, reasserted itself by 1987, resulting partly from government economic decisions and partly as a reflection of rising world commodity prices. In 1988 Singapore's total trade amounted to about S$167.3 billion (US$80.8 billion), with a global trade deficit of about S$8.18 billion. Singapore's GDP grew by 10.8 percent in 1988, the best growth rate in fifteen years. Disk drives were the largest non-oil item exported, worth S$4.89 billion. Other major exports were integrated circuits, data processing equipment and parts, telecommunications equipment, radio receivers, clothing, and plastics.

By early 1989, signs of slowing down and leveling off had appeared with the first export declines in eighteen months. Analysts agreed the weak external demand for electronics and computer parts resulted, in part, from an oversupply on the world market of disk drives, semiconductors, and related items. Imports surged, however, widening the trade deficit sharply.

Although their volume was not large, food products were a significant aspect of Singapore's trade. The urban nation produced only a small proportion of its own food, requiring it to import large quantities. Some food products, such as soy sauce and juices, were processed in Singapore for export, and Singapore continued its historical role as the regional center for the spice trade.

Trading Partners

Along with the changes in the composition of trade that had taken place since independence, there also were changes in direction. The preeminence of Britain as supplier of manufactures declined after independence, and by the early 1970s the United States and Japan had become Singapore's two leading sources of industrial products. Malaysia and Indonesia remained the principal sources of such primary imports as crude rubber, vegetable oils, and spices and an important destination for manufactured exports, including both the products of Singapore and of the entrepôt trade.

Singapore did not report trade with Indonesia. The omission dated from the period of the Indonesian Confrontation in the mid1960s and continued, according to some observers, because Singapore was afraid that if the Indonesian government knew the volume of the trade, it might try to curtail it. Estimates were difficult because a substantial part of the trade was viewed by Indonesia as smuggling and was, therefore, unlisted, although in Singapore's open export market it was legal. Nevertheless, trade with Indonesia could be presumed, based partly on Indonesian trade figures, to have assumed a gradually larger role starting in the mid-1970s.

As Singapore became more export oriented, its trading patterns became increasingly complex and interdependent. By the late 1980s, Singapore's trade links were strongest with the countries of the Organisation for Economic Co-operation and Development ( OECD), especially the United States, Japan, and the countries of the European Economic Community ( EEC) or of the Association of Southeast Asian Nations ( ASEAN). Singapore's drive to industrialization had drawn it increasingly towards the OECD countries for foreign investment, technology, and markets. To a large extent, this shift had meant decreasing reliance on its ASEAN neighbors, particularly for markets and supplies. The other Asian NIEs, Hong Kong, Korea, and Taiwan, were sometimes viewed as Singapore's competitors. On the other hand, Singapore engaged in considerable and growing trade with them, particularly with Taiwan, and all three were a source of skilled labor.

United States

By the 1980s, the United States had become Singapore's most important trading partner and, as such, crucial to the country's welfare. Singaporean officials often stated that a 1 percent drop in the United States economy had a 1.4 percent effect on Singapore's gross national product ( GNP). Consequently, in the 1980s Singapore was critically concerned about protectionist policies and budget deficits in the United States. In 1988 Singapore's total exports to the United States amounted to S$18.8 billion, up 28 percent over the previous year, and accounted for 24 percent of the nation's total exports. Of that total, about 80 percent were Singaporean manufactures, including disk drives, integrated circuits, semiconductors, parts for data processing machines, television sets, radios and radio cassette players, and clothing. Reexports to the United States also were an important part of the trade. Singapore's exports to the United States outstripped its imports from there, although the United States was, after Japan, Singapore's second largest supplier.

Until 1989 Singapore and the three other NIEs enjoyed trade preferences with the United States under the United States Generalized System of Preferences ( GSP). This system was originally instituted to aid developing economies, but in 1989, the four Asian NIEs were removed from the program because of what some observers have seen as their major advances in economic development and improvements in trade competitiveness. The United States had been trying for some time to wrest trade and currency concessions from all four countries (but primarily South Korea), which had not been forthcoming. Although Washington presented the decision more as an economic graduation ceremony, observers noted that the move reflected United States frustration over its continuing trade deficit despite considerable devaluation in the United States dollar.

The removal of the GSP affected less than 15 percent of Singapore's exports to the United States, among them telephones, office machines, wood furniture, and medical instruments, which faced duties of 5 to 10 percent. Ironically, United States firms based in Singapore were among the hardest hit. More than 50 percent of Singapore's exports to the United States came from American firms with operations there, such as ATandT, Digital Equipment, Hewlett-Packard, Rockwell International, and Travenol Laboratories. Singaporean companies, as well as Japanese and European firms with operations in Singapore, were also affected by the removal of the GSP. In early 1988, some 4,000 NTUC members gathered outside the United States Embassy in Singapore to protest the decision, and the Singaporean government expressed regret.

Japan

Japan's place in Singapore's business picture was underscored by the fact that, in the 1980s, Japanese were the largest resident expatriate community in the city. Japan was the country's single largest supplier, accounting in 1987 for 25.3 percent of total imports, and Singapore's largest trade deficit was with Japan. Buyback arrangements for products manufactured by Japanese firms in Singapore also accounted for a significant part of the trade. Oil accounted for 40 percent of Singapore's exports to Japan in 1988. Singaporean observers noted by 1989 a significant difference in the market orientation between Japanese firms and United States-owned multinationals. Japanese firms in Singapore were producing primarily for the United States and other third-country markets, rather than for the Japanese home market. The United Statescontrolled multinationals, on the other hand, produced mainly for their own home market. Many of these same observers, both official and unofficial, also expressed the sentiment that the world export market in the 1990s, would "belong to Japan."

Association of Southeast Asian Nations

The Association of Southeastern Asian Nations (ASEAN) was founded in 1967 primarily as a forum for discussing issues of mutual concern among neighboring Southeast Asian countries rather than as a trading union similar to the EEC. In part, this orientation was because, other than Singapore, most of the ASEAN countries had similar products, tending to make them more competitive than cooperative. Although trade relations among the ASEAN countries remained largely bilateral, there was some informal economic cooperation, including joint representations to foreign governments on economic issues of common concern. In 1989 the possibility of a more formalized economic entity was at least being considered by the ASEAN members.

In 1988 Malaysia was Singapore's largest ASEAN trading partner and third largest overall trading partner, after the United States and Japan. The Malaysian market was the single largest ASEAN destination for Singapore's exports and its second largest export market overall. In the late 1980s, Singapore established increasingly close economic and industrial ties with Malaysia's Johor state, which had served as Singapore's hinterland in colonial times. To alleviate its land shortage as well as its labor shortage and high labor costs, Singapore, began to transfer labor-intensive industries to sites across the causeway connecting it to Malaysia's southernmost state. Johor, in turn, hoped "economic twinning" with Singapore would boost its long-term development. By early 1987, there were 217 Singaporean companies or Singapore-based multinationals in Malaysia, having total investments of slightly more than S$200 million.

Singapore's much smaller markets with the other ASEAN countries also were growing. In 1989 Singapore recorded its highest growth in bilateral ASEAN trade with Thailand, which replaced Taiwan as its fifth largest trading partner. Intra-ASEAN trade generally might have been underestimated, partly because of the volume of informal trade, including smuggling, and partly because so much of it was controlled by the Chinese community in each country. Keeping business within the family, clan, or dialect group was a central Chinese business practice that persisted across national boundaries.

Other Trading Partners

Beginning in the mid-1980s, Singapore--which for two decades had sharply curtailed many forms of contact with China--began promoting itself as an alternative to Hong Kong as a "Gateway to China." In 1989 Singapore was estimated to be the fourth-largest foreign investor in the special economic zones of southern China and that country's fifth-largest trading partner; Singapore's companies were estimated to have about S$1 billion directly invested in China. Since most such investments were made in conjunction with Hong Kong-based companies, the real extent of Singapore's exposure to China may have been considerably higher.

Non-oil trade with the various EEC countries, which had been steady during the early 1980s, strengthened in 1987 and 1988. Nearly three-quarters of this increase was in exports of disk drives and integrated circuits, particularly to the Federal Republic of Germany (West Germany), Great Britain and the Netherlands. Overall, however, Singapore had a small trade deficit with Western Europe in 1988.

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Source: U.S. Library of Congress