Practical Policymaking in a Deglobalizing, AI-Centric, Geopolitically-Led World Economy
Mr Speaker, the premise underlying this motion is a straightforward, and appealing, one: that we can—and indeed we must—continue to embrace and exploit a strategy of economic, political, and technological openness, which has worked to bring Singapore from its status as a secondary (if strategic) backwater, to the global, first-tier city-state that it is today.
As an international economist who has spent the better part of his professional life teaching and advocating for the virtues of free trade, economic integration, and technological forwardness, I am both deeply encouraged and keenly vested in the spirit of this motion. Alas, it behooves me to point out that the world has, if anything, been moving in the opposite direction, with an erosion of globalization, a retreat from liberal international organization, and a shift toward policymaking informed by geopolitical might and domestic populist pressures.
I will therefore speak today about a tail risk: how to manage our cross-border economic policy and international relations in the face of a deglobalizing world. This risk has been slowly manifesting itself, ever more vividly, over the course of the past two decades, as the global policy landscape has evolved from the 20th-century’s rules-based order, toward a 21st-century law of the jungle.
I do so not as an alarmist, but as a realist. Even if a wholesale move in this direction seems remote, we must gird our collective loins, and formulate policy that is grounded in the unfolding reality of a world where flows of goods, services, capital, labor, and technology might face ever-greater frictions in their movement. Hence, while I support the overall thrust of the motion, I encourage this House to also be clear-eyed about a potential downside scenario.
The unfolding global economic order
Let me first paint the picture of what I believe this emerging new world order might look like. To fully understand this, we must look backward: to the global financial crisis of 2007/08 and, more recently, the COVID-19 pandemic.
Since the global crisis, flows of international trade contracted sharply. The drop was so severe in the immediate aftermath of the crisis that economists refer to this phenomenon as the “Great Trade Collapse”. While the causes are still being debated, the consequences are clear. Since 2008, the share of imports and exports, as a share of global output, has gone into retreat, in stark contrast to the decades prior. The capricious deployment of tariffs and other commercial policy instruments has resulted in a trade map aligned more toward geopolitical affiliation, rather than economic logic.
Cross-border capital flows have, similarly, stagnated after the crisis. This reverses the heady times of ever-rising financial integration, which took flight in the 1980s. The slowdown has likewise led some to speculate that we are entering into an era of financial “deglobalization”, where international finance will become increasingly fragmented and controlled. The trends of “friendshoring” and rising economic nationalism also suggest that foreign investment will be less forthcoming in the future.
Through much of this period, the flow of workers between countries had remained robust. If anything, advances in digital connectivity had flattened the world, promoting the outsourcing of tasks between countries, and encouraging the globalization of both unskilled and skilled labor. Falling transportation costs also spurred an unprecedented rise in tourism. The pandemic struck the first blow on this front, and while migratory flows have rebounded, they have been repeatedly threatened by rising geopolitical tensions and global conflict.
Some believe that information and communication technologies will allow digital flows to substitute for the decline in these other channels of globalization. Yet while we may be assured that connectivity will likely be sustained along this dimension, it has not been unvarnished by geopolitical pressures. The ban on advanced AI hardware by the United States is but one reflection of renewed restrictions, along with the disabling of the most advanced AI models to foreign nationals. Singapore has not been spared, having been degraded to Tier 2 status, on suspicions that our transshipment status has been exploited to evade export controls. And as the Economic Strategies Review Committee has observed, we also do not possess the capability to build our own foundational AI models. Thus, even as we strengthen our national AI strategy, it is clear that we are vulnerable to being disintermediated from an AI-led world economy, in both hardware and software.
Unfortunately, the decline in international exchange has been accompanied by an erosion of international cooperation. Treaties are being repeatedly renegotiated, and international organizations struggle to retain their traditional voice of authority in global fora. Instead, governance is dominated by fears of political polarization and populist sentiment. The world is becoming increasingly multipolar, and the conduct of international trade and finance appear to be driven far more by politics than economic fundamentals. Increasingly, economic tools are also being deployed to meet geopolitical objectives.
Implications for policymaking
Since our nation’s founding—and some would argue even before—Singapore has surfed the waves of globalization to supercharge our economic growth. This has served us well, and we have relied on our openness and status as a trusted intermediary to build an economy that is among the richest in the world. But I fear that the new global order will be far less accommodating to business as usual
With a slowing in the international exchange of goods, we need to pivot toward tradable services. Unlike merchandise trade, services have not demonstrated any post-global crisis slowdown, and now accounts for one-fifth of global commerce. But Singapore’s export basket remains more concentrated in the former, with goods accounting for around 110 percent of GDP (versus 70 percent for services). We must foster more growth in tradable services, which has the added benefit that it is also less subject to the need to undervalue our exchange rate, since services are much more likely to be competitive on the basis of quality and efficiency. And if we are focused on trade in services, we should keep in mind that we export more to the European Union than to the United States, and more to ASEAN than mainland China.
We also shouldn’t expect our trade orientation to remain global in nature, rather than regional. While this doesn’t mean prematurely surrendering our entrepôt status, it does mean taking our economic relationships with our near abroad—Asia in general, and ASEAN in particular—much more seriously. We should regard Southeast Asia as our hinterland, producing for that broader market, and wean ourselves off trade that is focused on Western partners. This will position us better in a world that is more multipolar and regional, as opposed to unipolar and global. This implies that we should rethink how much time and effort we spend on trade facilitation with partners like the U.S.. Instead, we should devote our energies to improving market integration, through introducing more services coverage to the RCEP, upgrading the agreement to include more high-level issues found in the CPTPP, and pushing for greater market access within ASEAN, especially when it comes to investment and nontariff barriers.
Moreover, as my honorable friends Gerald Giam and Kenneth Tiong both point out, heavily placing our bets on megasized physical infrastructure projects, such as Changi Terminal 5 and the Tuas Next Generation Port, may backfire if globalization is more restrained in future. This doesn’t mean that we turn inward on these projects, or abandon them; indeed, there is wisdom in planning and building for the future. But there may be a case to proceed with caution, perhaps by planning the buildout in tranches, and making parts of the full blueprint contingent on whether future economic conditions justify the massive capacity. The same would apply to our long-term infrastructure borrowing; for instance, we might wish to structure SINGA bond borrowing in a manner that will only trigger if the project meets certain threshold conditions associated with expected need. So long as the parts that are built first are fully self-contained, we can adopt a more incrementalist approach.
The same applies to capital flows, where we should look to investing more in the region. Unlike our early days, where we were starved of capital, we now have large public and private funds that can direct our considerable net savings elsewhere. Yet the national will to provide such guidance remains unclear. Look, for instance, at our nation’s foreign direct investment (FDI). While it is perhaps unsurprising that China and India top the list of FDI partners, the next ones on the list are the UK, Indonesia, Australia, and the U.S.. Among our top 10 FDI destinations, only two—Indonesia and Malaysia—are in ASEAN.
The argument is also relevant from the sell-side perspective. As we strive to cement our position as an international financial center, we must also recognize and accept that economies like China, the EU, and the U.S. are increasingly likely to favor financial intermediation through onshore locales, like Shanghai or Hong Kong, London or Frankfurt, and New York or Chicago. We should instead appeal to regional businesses, attract them—and not just American entities—to SGX for their listings, and to encourage them to park their buy-side wealth management operations here, rather than elsewhere.
The realignment of focus applies to labor flows, too. To be fair, we are already highly integrated when it comes to absorbing low-cost workers from the region. Where we have been less forward-facing, however, is in ensuring that our skilled local talent undertake stints abroad. I believe we should have a more structured framework for encouraging our PMETs to spend a year or two in their firms’ affiliates or subsidiaries located in our major ASEAN capitals.
Through EnterpriseSG, we already have a scheme—the Global Ready Talent Programme—that encourages companies to train young talent through overseas internships. This should not be limited to early-career professionals. Relocation costs can be minimized, perhaps with state acquisition of properties that can be rented out to Singaporean firms at attractive rates, especially SMEs looking to internationalize. I had also shared that international schools can be made more plug-and-play for relocating families, with subsidized fees similar to what is offered at home, and stronger syllabus coordination to make the return much more seamless.
Sir, I have received feedback from many a manager that one ceiling they face in deciding to promote a local PMET over a foreign one is the lack of regional exposure. This can and should be corrected, and all the more so in a world where PMETs from other regional countries are converging on our own in terms of training, skills, and experience.
Next, if we accept the premise that digital and virtual exchange will increasingly substitute for the other traditional modes of trade in goods, services, capital, and labor, then the ability to exert control—or at least, exert leverage—over access to the underlying technological infrastructure becomes far more critical. This is the case for both hardware (data centers, in particular) and software (in terms of foundational AI models, whether in generative, agentic, or embodied applications). My party colleagues, Dennis Tan and Gerald Giam, argue in favor of expanding our ownership over these tools, to build our nation’s digital resilience. Even accepting that we may not build in-house foundational models from the ground up, I would still like to know if the government, through the National AI Council, has already developed a safeguard plan, in the event of sudden withdrawal by Big Tech firms to data center access, AI models, digital platforms, or even APIs.
Finally, when we conduct negotiations, we should be cognizant of how it is almost impossible to successfully arrive at terms when positions fall outside of the constraints imposed by other nations’ domestic politics. This may mean a very narrow set of options. We may choose to hew to ideal principles ourselves—keeping tariffs at zero, maintaining the UNCLOS right of free passage, leaving capital lightly taxed—but the rest of the world may not agree. A practically-minded foreign service and MFA will have to leave room for occasionally departing from non-core principles, or we might find ourselves unable to strike deals at all.
Concluding thoughts
It is World Cup season, so allow me to close with a football analogy. Players (and seasoned fans) will know that, when pressing a counterattack, one does not pass to where the other players are now, but where they anticipate they might go. From my vantage point—on the field's left wing—this is how I believe our policymakers should adapt. We cannot bet on the ideal world of yesteryear, but should instead align policy with the likely world of tomorrow. Otherwise, we may find ourselves offside, and our economy and society left out in the cold.
