US Elections Impact on ASEAN Businesses - Insights for SMEs in Singapore

The implications extend far beyond American borders as the world closely watches the unfolding of the US elections on November 5, 2024. The outcomes can influence economic stability, trade policies, and market dynamics for small and medium-sized enterprises (SMEs) in Singapore and the broader ASEAN region.  

1. Economic Sentiment and Market Stability 

The uncertainty surrounding US elections has historically led to volatility in global markets. For instance, during the 2016 elections, the S&P 500 Index saw fluctuations of approximately 5% in the weeks leading up to the election. Such volatility can directly impact Singapore's economy, where approximately 50% of the GDP is linked to exports. For SMEs in Singapore, the uncertainty and volatility do not bode well for demand, as retail and commercial consumers tend to adopt a wait-and-see approach in times of uncertainty. Though not significant from a broader period, the delay is critical for SMEs. Considering cash flow is always the Achilles heel of SMEs, periods of such instability are always a primary concern for SMEs.   

2. Trade Policies and Tariffs 

The US is a significant trading partner for ASEAN. In 2022, the US was the third-largest trading partner of ASEAN, accounting for around 9% of the region's total trade, valued at approximately $335 billion. Singapore's exports to the US amounted to $48.5 billion in 2022, illustrating the importance of stable trade relations. If the elected administration adopts a protectionist stance, Singaporean SMEs may face increased tariffs, impacting their competitiveness. For instance, the 2018 trade tensions led to a 30% increase in tariffs on certain goods, disrupting supply chains and raising costs for SMEs.  

Conversely, suppose the newly elected administration will lift tariffs imposed on goods from ASEAN countries, including Singapore. An SME manufacturing electronics could significantly benefit from reducing costs and increasing competitiveness in the US market.  

3. Foreign Direct Investment ("FDI") Flows 

FDI from the US to ASEAN reached approximately $323 billion in 2020, making it a crucial source of regional investment. This figure has grown exponentially, and being the financial hub in ASEAN, it is no surprise that Singapore receives a substantial portion of the investment. Based on the following statistics, the FDI from the US to Singapore has been rising steadily, crossing the US$400 billion mark in 2023.  

So, what does a higher FDI to Singapore translate to, and how may the election results affect this?  

A pro-business US administration could further enhance this flow, building and supporting investments in Singapore. Although one might contest that the bulk of this investment is to MNCs, the spillover effects, such as increased demand for ancillary services, higher demand for complementary products, and deeper partnerships with supporting SMEs, will lead to more opportunities for local SMEs.  

Source: https://www.statista.com/statistics/1398739/united-states-direct-investments-singapore/  

4. Supply Chain Dynamics 

A 2021 ASEAN Business Advisory Council survey indicated that 53% of businesses in the region experienced supply chain disruptions due to external factors, including US-China trade tensions. As SMEs in Singapore are deeply integrated into these supply chains, shifts in US trade policy post-election could necessitate recalibrating their logistics and sourcing strategies. For example, suppose US tariffs on Chinese goods remain high. In that case, SMEs may need to consider alternative suppliers, impacting cost structures and pricing strategies. Based on our analysis, the impacts on the supply chain may be significant considering Singapore's standing and emphasis as a trading hub in key logistics routes.

5. Technology and Innovation Partnerships 

According to a report by the World Economic Forum, the US accounts for 37% of global R&D spending, significantly influencing technology trends worldwide. If the new administration prioritizes innovation, Singaporean SMEs could benefit from collaborations that enhance their technological capabilities. In 2022, Singapore's digital economy was valued at $74 billion, and leveraging US technology could catalyze further growth, especially in the fintech and health tech sectors.  

Singapore's focus on technology and digitalization has yielded notable results. As seen in the following graphical representation released by IMDA in 2023, the value added (VA) in the rest of the economy, apart from the information and communication sector, had been growing steadily. From S$38.6 billion in 2017, it achieved a CAGR of 13.5% p.a. to S$72.8 billion in 2022.  

One point to note is that adopting such technology in Singapore is unequal. Based on the following statistics, we think that increasing technology investment and resources will undoubtedly open up new opportunities for SMEs.   

6. Regulatory Changes and Compliance 

Changes in US regulations can have downstream effects on international compliance standards. For instance, they implemented the Foreign Account Tax Compliance Act (FATCA) in 2010, which required foreign financial institutions, including those in Singapore, to comply with strict reporting requirements. According to industry analyses, this reflects how US regulatory decisions can impose additional compliance burdens on SMEs, which may incur costs estimated at $15,000 to $50,000 for adapting to such regulations. Though such changes are highly unpredictable, we think no substantial change in compliance costs will be imposed in the short run.  

Conclusion 

As the US elections approach, Singaporean SMEs must remain vigilant and proactive in understanding the potential impacts on their businesses. By monitoring the political landscape and its implications for trade, investment, and economic stability, SMEs can better position themselves to navigate uncertainties and seize new opportunities. Engaging with professional accounting and business service firms can provide the necessary insights and strategies to mitigate risks and enhance growth prospects in an evolving global landscape. 

In summary, while the outcome of the US elections may seem distant, its effects resonate strongly in the ASEAN region, particularly for SMEs in Singapore. The interconnected nature of global trade and investment underscores the importance of adaptability in sustaining growth and competitiveness in an increasingly interconnected world. 

To remain competitive in the ever-changing business climate, we strongly advise SMEs to relook into the following key areas:  

1. Re-evaluation business model, including suppliers and customers 

2. Analysis of Key Operating Costs 

3. Government incentives, grants, and reducing tax liabilities  

4. Exploring new business opportunities (New segment or Geographical markets) 

At OakTree Accounting and Corporate Solutions, we aspire to be your business partner. Whether you're a new start-up or an established company, we provide a one-stop solution for all your accounting, taxation, and compliance needs. Working together, we hope to support your business journey, allowing you to focus on where the business needs you most—developing it.  

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DISCLAIMER: The views and opinions expressed in this article are those of the author and do not necessarily represent the views and opinions of any individuals or organizations with which the author may be affiliated, either in a professional or personal capacity, unless explicitly stated.

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