Transcript of Minister for Foreign Affairs Dr Vivian Balakrishnan's Interview with Financial Times Singapore Correspondent Owen Walker, 7 April 2025

Minister: Let us start with getting ourselves orientated with Singapore and our peculiarities because that affects the way we look at the world and the way we respond.

For the readers of FT (Financial Times), what I need to convey is that Singapore is a tiny city state. We are smaller than New York City, but we are a sovereign, independent nation, which means (it is like) New York City having its own currency, its own monetary policy, its own trade policy, its own economy, with both manufacturing and services, and its own access to resources. And the unusual fact that our trade volume is more than three times our GDP (Gross Domestic Product). A key attribute is, first, our strategic location. This is the southernmost tip of the Eurasian continent, one degree latitude north of the equator. This is the tip of the Straits of Malacca. In fact, the Straits of Singapore, the south of Singapore, connects the Indian Ocean and the Pacific. And until climate change opens up the northern channel, the shortest route between Europe and Asia is through the Straits of Malacca, which means you are headed around Singapore with the additional caveat that this holds so long as the Suez Canal remains open, because you would then have to sail around the Cape of Good Hope. In fact, the shortest route between Europe and Asia is the southern straits via the Straits of Malacca. So that is just to remind everyone that we are exquisitely sensitive to what happens far from our shores.

The second theme I would make is that Singapore has achieved a per capita growth – it used to be 500 US dollars in 1965 – beyond a hundred-fold in 60 years. Of course, this has a lot to do with a hardworking, disciplined population. We believe this has got to do with a hyper-rational, competent, technologically focused government. But it is also due largely to what is happening beyond our shores. To us, in the last 80 years post Second World War, where the ultimate victor – the United States of America – a very unusual, magnanimous and benign hegemony, envisioned and underwrote the multilateral rules-based system which promoted trade and investment. This Pax Americana gave a turbo charge in the earlier years to non-communist Southeast Asia, and then thereafter, at the end of the Cold War, and even when Indochina joined, progressed free flow of investments, technology, and trade. So, we give full credit to the United States. And we are acutely aware that the strategic situation that Singapore found itself in 1965, cut up from our hinterland, meant that we did not have the luxury to indulge in import substitution. In fact, we had to become a global city before globalisation became a thing, meaning we looked to the world for markets. We looked to the world for resources, and we looked to the world for technology. We therefore organised ourselves to be a very conducive site for the growth of multinational enterprises – that also happened around that time – the dissemination of technology, including chips, electronics, high value adding and so on and so forth – the growth of services, financial services. And you will notice, therefore, that we were optimally organised to catch the sails of Pax Americana, global economic integration and growth of supply chains. But that was not all, because we are in the heart of Southeast Asia, Southeast Asia itself benefitted. But there was another turbo charge after 1978 with the reforming and opening of China. And that obviously was big, because it suddenly connected over a billion people into the global economy, and given our status as an entrepot, a financial centre, as a place where East meets West, able to navigate both western legal precepts, rule of law, sanctity of contract, and with our cultural, linguistic and historical familiarity with China, again, gave us another exquisite, perfect position. So that is the second. 

Third is, of course, ASEAN and ASEAN integration. The story of ASEAN in the last 30 years is progressive integration, investment, and bringing down trading barriers. It is not completely gone, but I would say it has substantially, and our vision is to create an ASEAN as a single investment destination and a single production. But I want to make the point that we have also benefitted from being at the geographical heart of Southeast Asia, and also at the heart of all these initiatives for integration.

So, I now come to the message that my Prime Minister issued a few days ago, and I hope you have seen the video. He sounded the alarm. It is an urgent and sincere message, first of all, to our own people. Some people may ask, why is this such a big deal? But it is a big deal. And to the extent that others are interested in hearing the perspective from a tiny city-state out of Southeast Asia, we think it is important. So, for us, this is big. This is the end of an era.

As my Prime Minister described it, it is a seismic shift. But we believe that the announcements made in the last few days have, quite frankly, exceeded the expectations of most observers or stakeholders. To us, this is truly an inflection point.

The reason why we call this the end of an era is because it is very clear that the architect, the master planner, the developer of the rules-based multilateral system of economic integration, has, for a variety of reasons, decided that it now needs to, in fact, almost engage in the demolition of the same system it created in that unusual peak of generosity and ambition.

The point I want to make here is this: what was unusual about 1945 was not that America won. At that point, America’s share of global GDP was 40%. When America decided that it made strategic, long-term sense, in its own national interest, to build up the world, it also meant that 40% of every extra dollar generated by global GDP would accrue to it. So, I am just making the observation that it was, in fact, in America’s enlightened self-interest.

Today, American GDP – in absolute terms – has obviously grown tremendously since 1945, but its share of global GDP has declined. I think it is now running at about 26%. The point is, there is a big difference between 40% and 26%.

I say that because I want to acknowledge that all politics is domestic, and it is an entirely legitimate question for the American voter to ask: with a 26% share of global GDP, is it still worth the American cost – in blood and treasure – to uphold this system? It is a completely legitimate question.

The other point relates to the history of deficits. If you look at the curve in the aftermath of the Second World War, America was in a surplus position with the world. Then you had a complicated series of events – going all the way down to the Nixon shock, the gold standard, the Bretton Woods agreements.

But the point is: you now clearly have a major trade deficit. Again, I just want to acknowledge that, because I do not like to engage in political or moralistic judgements. There is a large American trade deficit. Now, professional economists – which I am not – will argue about this. I am a surgeon. So as a surgeon, I like to be clear about my diagnosis, the cause, and the symptoms.

The deficit is an observation. Now, is that due to profligate spending, government deficits? Or is it due to the fact that the US dollar is the world’s reserve currency? It is the reserve currency for very good reason. At 40% of the global economy, it was freely convertible. There was confidence in the rule of law and in American stability. But again, as things change, the status of the US dollar as a reserve currency – and the price of maintaining it – must be considered.

There are certainly some analysts who say so. And of course, another reason – which I believe Paul Krugman has advanced – is that the deficit reflects the fact that American innovation and productive capacity have made America a still very attractive destination.

My point is that one can debate a variety of reasons for the deficit. It makes for good and interesting reading. But for us, now, in the midst of it, the important thing is to accept that there is a deficit, there is a problem in the system, there is anxiety over national security and national resilience. I am saying all this again just to remind us: let us be reasonable and sensible about it. And the reason why we are taking that attitude is because we view our relationship with America – we are very tiny – but we view it as a partnership. We are not a vassal state. We are not a dependency. We do not receive ODA (Official Development Assistance) or subsidies from America. But they are very important and critical economic partners.

Walker: As partner, to receive that 10% (tariffs imposed by the US on Singapore), was that very devastating? 

Minister: We unpacked that at three levels. First, as partners with a free trade agreement which has been in effect since 2004 – and we believe it is a gold standard free trade agreement – we have zero tariffs on American goods. In fact, every time I used to meet President Trump in his first term, I had always made the point that America has a trade surplus against Singapore, and it currently runs at about US$30 billion. From that point of view, of course, we are not thrilled at having even 10% although that is the base. That is the first point. There is no reason for us to be subject to this.     

Second point is that we are actually more worried about the other tariffs yet to be announced on a sectoral basis. We are also concerned with the higher tariffs imposed on our neighbours and our other trading partners. As I mentioned, our trade volume is three times our GDP. Clearly, it means that any friction to global trade will have a knock-on impact on us and to add all that up, it will be quite a significant impact for us. That is the second level of anxiety. In fact, arguably, we are more anxious about that than the primary (level of anxiety).

The third is a more profound anxiety, which my Prime Minister (had) set out. Article I of GATT (The General Agreement on Tariffs and Trade) sets out the principle of MFN – Most Favoured Nation. The WTO (World Trade Organisation) rules do envisage that countries may sometimes need to engage in industrial policy, and they do envisage sometimes there may be certain sectors which may need some level of temporary protection. The WTO rules also envisage that there may be breaches for which you need dispute resolution. But the MFN principle is that, even if you wanted to have a bound tariff, it applies more equally. You do not discriminate; you do not pick targets. What we fear is that this current approach is a full, frontal repudiation of the MFN principle, which is a foundational pillar of GATT and sub-security. Because once you start getting into a discriminatory game, there are 190 countries – the permutations are very rapidly exponential. So there was good reason for the MFN principle. We believe there are problems with WTO, but basically what Singapore has been calling for several years is reform of the WTO, not repudiation of the WTO, its foundational principles, and its processes and institutions. Our greatest fear is that this set of announcements has shaken the foundational pillars of the world trading system, right down to the core. If that collapses, and everything becomes a series or infinite series of bilaterals, it is going to be very hostile for small nations, especially small nations like ours who are exquisitely sensitive to global trade. So it is a global trade war that we are really afraid of.

I have unpacked it at three levels – one, just the direct impact to us; two, impact on our neighbourhood and our trading partners; and three, the global trade war and the very fundamental repudiation of the WTO. We do not stand here as apologists; we stand here as people who have been advocating reform of the WTO to make it fit for purpose.

Walker: How does Singapore respond to this situation?

Minister: Again, there are several levels. First, there is the domestic. Then, there has to be a conversation with the US – that is something we are going to have to do behind closed doors. Then, what are we going to do internationally.

Domestically, the Prime Minister has set out the risk and what is at stake for our population so that they know that if this proceeds, and retaliatory tariffs are imposed by big players – China, the EU (European Union) – we are into a global trade war. We are informing our people quite categorically – this must mean an impact on prices versus inflation. It is also an impact on global growth, and because of the way our economy is structured, it will affect (our) growth. That is why we have said we are anticipating rough waters ahead. That is on the domestic side. You will have noticed from our recent Budget announcements, notwithstanding all this, we had in fact already embarked on the process of restructuring our economy to deal with very fundamental challenges. Even without a trade war, there was already a push back to free trade. There were already signs of bifurcation manufacturing of global trade, and we were already seeing signs because of anxieties over national security and resilience, especially accrued during (the) COVID-19 period, that global supply chains were no longer necessarily organised on efficiency and competitive advantage, but had to take into account resilience, relying on trustworthiness and supply chains nearshore, friend shore, etc.

So domestically, we were already preparing for that, and the first event you would have noticed (was that) there was already an increased support for social security. Because if you are going to get onto a rollercoaster, you have to make sure the seat belts are on. So that is the first thing. Second, you would have noticed the additional funds that we are putting into retraining, reskilling, reforming education and paying particular attention to mid-life, mid-career retraining or even changing fields entirely. So quite a lot of that work is already in place. So, I would say what we have already announced in terms of social safety nets and reskilling and retraining our people for jobs of the future, trying to eke out further efficiencies out of our bureaucracy, using licenses, refined processes, all those three things are aimed at improving productivity. So, I would say all that is still the same. I think the Deputy Prime Minister also said last week that for now, we think those budget announcements and measures are sufficient, but we will have to watch very closely to understand what happens.

Here again the other aside I would make is that, fortunately, we have got some fiscal firepower. That is a very fortunate situation. I should digress here to say when I first talked about the peculiarities of Singapore, I talked about trade being three times our GDP. There is another set of statistics which leads to that section, which is that our government expenditure as a proportion of GDP is only about 20%. But that is not all. About 3.4% of GDP is funded from what we call the NIRC – the Net Investment Returns Contribution. That is because we have no national debt. We have healthy national reserves and our reserves are the second highest source of revenue of the budget, which means if you take 20% and minus 3.4%, it means in terms of the tax burden on our population, it only runs at about less than 17%, which is remarkably low. But I say all that for FT's sake, because when people accuse us of being a tax haven, we do not quite appreciate that. We are very careful with our expenditure. And unlike most other countries, we have got net investment returns rather than servicing debt. That is why our taxes are low.

Coming back to this point, our Deputy Prime Minister has said that if we need to, we will certainly look at it and again, we count our blessings that we have reserves and our tax burden is low.

With the United States, we have had and we will continue conversations, but we are acutely aware we are not on the frontline. The big negotiations which we are waiting for the US to embark on, are with the big boys. What negotiations occur with China; what negotiations occur with the EU? And then we also have a stake in ASEAN, because ironically, some of the less developed ASEAN members have been slapped with high tariffs. There should be at least 60 countries in the queue ahead of us. And so, whilst we have got some points to make to our partner, we are not rushing to the entrance. But in any case, America and the administration officials, they are familiar with Singapore and our particularities, and they know that ultimately, the way we do things is that we aim to be the most reliable, trustworthy partner to all our partners, and that means being rule-based, rule of law, transparency, consistency.

Now let me turn to what we are trying to do with the rest of the world, and for that, I want to give you a few exhibits to make the point over the last seven years. You may remember there was this thing called the TPP (Trans-Pacific Partnership), but actually the origin to the TPP was the P4, which is four countries, Singapore, New Zealand, Brunei and Chile, across the Pacific. But then somehow along the way, the US came onboard but it fell off. What was a pleasant surprise was that the remaining 11 of us, led by Shinzo Abe, then Prime Minister of Japan, came together and I think it came into force in 2018.

What gives me some cheer is that, in fact, that is why it became CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership), things could still happen even when the US moved out, as long as there was enough motivation and collegiality with the rest to proceed. And in fact, because the economic logic is still salient, it expanded and the UK joined us.

Then there was another agreement called the RCEP – Regional Comprehensive Economic Partnership. This agreement consists of all 10 ASEAN countries, including China, Japan, Korea, Australia, New Zealand. Actually, we wanted India to be part of it. In the end, India could not, because India was anxious. Its main anxiety was the very asymmetrical trade balance with China because they do not have a free trade agreement with China, but also what impact it would have on its own economy. So anyway, India pulled out. What was meant to be 16 became 15. 10, plus five, and we got the RCEP over the finish line and it is coming to effect. Today, we have queues for the RCEP. We have got Hong Kong, Sri Lanka and Bangladesh. You can see there is interest to come on board the RCEP.

Now, I should say, from Singapore’s perspective, actually our larger vision for both TPP and RCEP was ultimately to create a Free Trade Area of the Asia-Pacific. Because if you combine the two, it actually casts a wide net, across the Pacific Ocean. Again, makes the same point, even in the absence of America, there is still the recognition of the economic logic for free trade and economic integration. There is this grouping called the Pacific Alliance, which encompasses Chile, Peru, Colombia and Mexico. In fact, I think they are about to expand too. In 2022, Singapore signed a free trade agreement with the Pacific Alliance. That agreement will come into effect for Chile and Peru in May 2025. And if you look at the identity of the Pacific Alliance governments, you realise the governments actually span from hard left to hard right. And then in December 2023, I remember going to Brazil to sign the free trade agreement between Singapore and MERCOSUR. MERCOSUR is Argentina, Brazil, Uruguay and Paraguay. Again, I will ask you to look at the political diversity of the countries. We believe there is still an appetite for integration and free trade agreements. There is also the EU-Singapore Free Trade Agreement which we did in 2019.

So, what I would say to you is that the recent developments have convinced us that we need to accelerate this process of making common cause for multilateralism, economic integration, free flow of trade and investments and technology with as wide as possible. And you know, we cannot speak for what direction or how far away America may move before it comes back. But we believe accelerating this process with the rest of the world, which in fact, if you look at all the agreements I have listed, I think we account for a very substantial majority of global trade. So, I am not trying to minimise the loss that will result from America going missing in action, but I am saying the game is not over.

Walker: So, I suppose you are seeing a future where America is much less of an important player?

Minister: America has changed. The fundamental change is that the architect, the developer, the underwriter, has now decided that the system does not work, and in fact, arguably, may be engaged in full-scale demolition of what it created. Now I do not know how far that will go, but what I am outlining is the kind of day-after perspective, what we are doing domestically, what we are going to do with America. We still want and treat (America) as a valued, essential partner. And then what we are going to do with the rest of the world, to keep multilateralism, rules-based systems, economic integration, and to also embark on reform of the WTO. So that is our agenda, and I think that will keep us occupied, if you see, we are going to be busy.

Walker: How does China play into all this? Because clearly Singapore has two great trading partners, one for services, one for goods.

Minister: China is our biggest trading partner for goods. The US is our biggest trading partner for services. Even for goods, the US is our third largest trading partner. So, it is not as binary as people make it out to be. And if you look at investments, the US is the biggest foreign investor in Singapore. If you ask China, who is your biggest foreign investor, sometimes, well, Singapore (is) quite high up in that short list. If you go to India and ask who is your biggest foreign investor, you will see again Singapore appearing. So, we have got real skin in the game. We are also, I believe, the third largest Asian investor in the United States. You can look at Temasek’s portfolio. We do want to continue investing in America, because in terms of technology, in terms of business innovation, the effervescence. We do not subscribe to the view that America is on a terminal decline. But it is going through a major febrile period.  

Walker: Does this mean that China becomes more important for Singapore, globally?

Minister: Actually, that is another way of asking “How do you manage relations between US and China?” I have already set out why we will always have a vital and complicated relationship with both, and it comes really to the fact that we view ourselves as partners, despite the asymmetry. And that the key attribute that we bring to the relationship is that we will be open, inclusive, transparent, fair, rule-bound and because we are not the recipient of aid. Any goods or services that we need to buy from the US or China, we pay full market price. It is an honest relationship. Do we support both of them? Yes, we do. Are we relevant? I hope we are, because that is part of our proposition, but we are very, very acutely conscious (that) we will not be made use of. And it means, from time to time, we will say no to Washington, we will say no to Beijing, but if and when that arises, they will know it is because we have done our own long-term national calculations. We say no for our own sake. This kind of relationship has to be reciprocal and symmetrical on both sides. That is how we have handled it over the last 60 years.

Now, obviously that works best when both of them get along. When they do not get along or they are actually actively trying to cut each other out, it does pose a fundamental challenge to us. But we have decided we will still continue to play this whole thing open, transparent, rules-based. We will commit to both of them – you will find us to be amongst your most reliable, trustworthy partners. It is a delicate balance. I am not even sure the word ‘balance’ is right. If you look in history, if you look at, say, Switzerland, the Genevans, they aim for “neutrality”. If you look at the role that Shanghai and Hong Kong (played) during the colonial times, you had a Western beachhead engaging the East. Singapore is unusual because we are a sovereign, independent city-state, trying to engage America, China, Europe, India, ASEAN, South America, Africa. But it is actually quite different from the formula that Switzerland and other portals of engagement between East and West (had used). It is a unique role, but I believe if we are smart about it, we will find opportunities. If you want to say what are those opportunities we found that – let us just use a more recent topic, COVID-19. Just having one of the world's lowest mortality rates, or having a cautious but sensible risk-based approach to managing the pandemic. By being open to technology and not taking rejection, we found the same perks have become even more attractive. I know you write about wealth management and all that, but really, the backstory to it is that an open, fair, reliable, modern, predictable rules-based, independent city-state that stands on its own two feet and also, by the way, spends enough on defence to underwrite where we stand. That is the backstory for a lot of secondary economic benefits. We think we will continue, we believe that is still the right thing to do, and we will continue to double down on this.

Walker: My broader point is just in terms of global trade, in terms of ASEAN regional trade, the US is pulling back. Does that mean China becomes more important?

Minister: At the superficial level, the answer is probably yes, but there are two parts to that. I mean, it is not really a secret. China has its own domestic and economic issues, and I think this global trade war could not have come at the worst time, both for China, as well as all China's partners. The third point I would make is, look at the supply chains. Although we say America is 14% of global trade, actually its impact is far more important. If you look at the iPhone, it has got some components which are made in Singapore. It has got bits and pieces from all over the world. Its final assembly may have been in China, or other places, and now maybe some parts are in India. But the lion share of the revenue still goes to Silicon Valley. What is going to happen to all this? It is complicated; it is not a binary game and this can truly be an example of a lose-lose conversation. But again, I come back to my point that for us, (it is about accelerating) economic integration with the rest of the world that still believes that there is a future, that economic relations are worthwhile. I hope I have cited enough examples in the last seven years where we were able to get things done. Maybe you might call me a bit wishful, but I guess I am trying to say it is not game over and let us just work harder.

Walker: You paint this picture very well where you are not looking to enforce America's rules and China's rules. But certainly, I suppose in recent years, you would have had questions coming from the US on things like export controls. And from China, maybe the same.

Minister: So, what is our position on that? I think I have said it before. I will repeat it for the record. Number one, we actually are not legally obliged to enforce others’ unilateral sanctions. Our usual position is to enforce sanctions which have been approved by the United Nations Security Council. That is our starting point. We are not legally obliged to enforce unilateral sanctions, whether those sanctions originate from America or China. Now, having said that because our value proposition derives from our position as an open trading port and that our reputation for hygiene, rule of law and transparency is valuable in its own right, we do have some things to protect. That means, if we find that companies are using their association with us and actually using it to circumvent restrictions which they may be subject to, depending on their international operations, we are not going to be a party to that. We want to make sure that anyone is doing business in Singapore, if you are filing a declaration, better be honest. There must be no “hanky panky”. There must be no corruption. There must be no misstatements, no switch and bait. You would have seen the evidence of that recently. Some people were arrested because we were investigating whether in fact declarations were honest. That is the way you want to do this. Remember we had this money laundering network (in Singapore) which we had to break up. Singapore's value proposition is we want to be a safe, transparent and regulated place for wealth management. That means clean money, honest money. We are not interested in “hot” money or “dirty” money. We do that again for very practical reasons, because being squeaky clean – it has got value for us.

Walker: These are two examples in chips and money laundering, but both seem on the surface to be quite “reactionary”.

Minister: No, I would say, if you look at the money laundering case, I do not think anyone else has as assiduously investigated and cracked such a case.  I do not believe Singapore is the only place where these activities are going, but it is just that this is the place where we have got very efficient, assiduous, relentless investigative agencies and we get to the bottom of it. As I said, we do so not because America or China asks us to do this; we do this for our own sake. We do not want “hot” money, we do not want “hot” goods. We have no need. In fact, our longer-term national interest comes from this hygiene factor. There is a value to it. We are obsessed with rules and the sanctity of contracts, because these things reduce your risks. In fact, they are sources of competitive advantage. The rule of law, the sanctity of contract, and on what basis you enter into agreements you can depend on. In many other Asian societies, you can only enter into agreements with blood relatives – it reflects the paucity of law and sanctity of contract. Singapore is a nation, a society, that is obsessed with law and sanctity of contract. That is our value proposition. That is one aspect of our unique selling point.

Walker: Just a little bit on defence. We talked earlier.

Minister: Yes, defence is very simple. For six decades, we have spent between 3.4% to 6% of GDP on defence. President Trump had no need to remind us. Today’s figure (for defence expenditure) of 3.4% (of GDP) is actually the same ratio as the United States. Some people raise their eyebrows and ask, why so much? My usual answer is precisely because we are small and exposed. If you want to be sure that your money is safe, I would also need to convince you the security is in place.

Walker: When you look at the switch in tone that the US has taken with Ukraine, and Singapore is a big advocate and supporter of Ukraine for good reason, has that changed your perception of whether the US will be there for you, given your close military ties?

Minister:  First of all, it is not that we were taking sides on that conflict but for us it was a fundamental principle. Because if a large neighbour says it can invade a smaller neighbour, redraw boundaries, annex areas, and it cites historical errors and crazy decisions, (for) a tiny city-state with only 60 years of history, all alarm bells will go off. Our position has been one of principle – a principle which is sacrosanct to us. That is why we took the position. The second point I would make is that for our own defence, we invest in it – we invest both money and blood because all of us serve national service – we do not expect any white knight to rescue us.

Walker: So, you are not worried?

Minister: I would not say that I am not worried, but I do not expect the US to defend us. But would the US, would Europe, would China do something if Singapore was to go under? Again, let us not exaggerate it, because my founding Prime Minister reminded us – in the world, there is no irreplaceable function or service that a small state provides, and we have to actively seek to be relevant and useful so that hopefully people may notice if we crash and burn. But in the meantime, knowing that the only safety net beneath us is one that we had constructed, that is why we put money behind it.

I think you had some questions earlier about the Pacific and South China Sea. Our position is very straightforward. The real issue in the Pacific is the relationship between the US and China, and to the extent that they can sort that out and find their modus vivendi – that will be the single biggest contributor to stability and peace in the Pacific. The South China Sea is secondary to the Pacific. We are not a claimant state fortunately, but for the claimant states and China, I will make two points. First, no ASEAN claimant state wants to go to war with China. Second, we believe that there must be peaceful resolution of disputes. We believe in the primacy of UNCLOS (United Nations Convention on the Law of the Sea). Our interest in UNCLOS from a Singapore perspective is because of the freedom of navigation and overflight as a right, and not by the grace of whoever happens to be in those waters. Open access and the peaceful resolution of disputes is something we have a key stake in, because even escalation of tension will affect trade, will cost us something. But like I said, the primary variable is the US-China relationship.

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