Trade war salvos singe Singapore’s chipmakers

Ly Chong, chief operating officer at Hybrionic Pte Ltd, a Singaporean hybrid microcircuit producer which employs nearly 300 people, says his business has been “drastically” impacted by the US-China trade war.

The company builds electronic circuits and modules used in automobiles, healthcare devices such as hearing aids and telecommunication electronics. Ninety-five percent of the firm’s products are exported to the US market but its supply chain is linked to China.

“Because of the trade war and our end-customers, we were asked to hold back our shipments of an automotive product that represented 40% of our total sales,” Chong told Asia Times in an interview.

That product, Chong said, has traditionally been sent by his firm to China for assembly into a module which is then shipped to Mexico and the US. Sales volumes of the device have recently drop by some 60% because of US tariffs, he said.

“We are hoping things will not get worse. But even thinking about going back to last year’s volume, there’s no way from what we see because of this trade war issue,” he lamented. “Everybody kind of tightened their belt, the whole industry is shrinking.”

Singapore’s trade-reliant economy is expected to grow at its slowest pace in a decade this year as the city-state’s two biggest trading partners, the United States and China, raise the stakes with a new round of tit-for-tat tariff increases.

The island nation, widely seen as a bellwether for the global economy due to its high exposure to international trade, is caught in the crossfire of a superpower trade war that analysts predict could tilt its economy into recession later this year.

Nowhere is that pinch being felt more acutely than the export-geared electronics sector, which accounts for over a quarter of Singapore’s manufacturing gross domestic product (GDP) and provides components and other parts to supply chains worldwide.

Trade data from Enterprise Singapore, a government agency, showed non-oil exports continuing to fall by double digits for the fifth straight month in July. After a 15.9% drop in May, exports plunged a further 17.4% year on year in June – the largest contraction since early 2013 – followed by an 11.2% decline last month.

The city-state’s electronics sector, led by the semiconductor industry, saw exports shrink by 24.2% in July after a 31.9% drop in June. Apart from the US, trade with Singapore’s top ten export markets fell, with Japan, Malaysia and Hong Kong leading the decline in shipments.

“Heightened global trade tensions from the protracted US-China trade conflict are reflected in Singapore’s economic indicators,” said Han Tan, a market analyst at FXTM, a forex broker. “Open and trade-dependent economies across the region are likely to continue seeing downward pressure on their growth prospects.”

Earlier this month, Singapore lowered its economic growth forecast for this year to almost zero, a further warning sign that its trade-reliant economy is sliding toward a recession.

The city-state now expects GDP to fall between zero and 1%, which could be its worst performance since 2009, revised from an earlier 1.5%-2.5% forecast. Singapore’s GDP grew by 3.1% in 2018 and 3.7% in 2017.

Lackluster growth and an ongoing export slump have already cost many jobs, with retrenchments rising 40% in the first quarter of 2019 year on year, driven mostly by manufacturing sector cuts. Chipmakers across the city-state are said to be holding back on hiring and new capital investments.

The semiconductor industry – which produces the electronic components used in products such as smartphones, laptops and automobiles – accounts for more than 7% of Singapore’s total economic output and employs around 35,000 workers, making it one of the country’s largest employers.

Semiconductors made up 28% of Singapore’s total manufacturing output in 2018 and 76% of its electronics production, according to official data. Based on estimates by the Economic Development Board (EDB), a government agency, the city-state accounts for 11% of the global market share for semiconductors.

After a surge in global demand in recent years, global semiconductor sales are expected to decline 12-13% in 2019 according to industry estimates, due to trade tensions, slowing consumer demand and technology cycle maturation. US action against Chinese telecoms firm Huawei, the world’s biggest telecoms equipment maker, has also impacted Singapore.

“Singapore’s supply chains are highly exposed to China-linked production networks hit by the US tariffs and so, it has been caught in the crossfire. China imports a lot of Singapore semiconductor products and Huawei has also been receiving these imports,” Rafi Glass, an analyst at Trade Finance Global, a London-based finance broker, told Asia Times.