There’s no win-win situation in fragmented world

Singapore will not take sides in geopolitical conflicts and will instead take positions that support the rule of law, the country’s Education Minister Chan Chun Sing said in his keynote speech at the Morgan Stanley Asia Pacific Summit in Singapore on Wednesday.

Any kind of fracturing would leave individual countries “uplifted” and suffer economically, he said, adding that the world must be interdependent despite the pressure to break up.

“With interdependence comes risk, but a fragmented world with less interdependence, where people and leading countries believe they can increase their security and indirectly exacerbate another country’s insecurity, will not be a win-win situation,” Chan said.

“It is important to remember that a more interdependent world is a safer world, but today, due to pressures, domestically and globally, there is a temptation to think that if the world is fragmented into two different factions, each is a different faction. Be safe.”

If fragmentation continues, Chan said, countries and companies will at best underperform, “instead … enjoying the rapid growth of the past 50 years based on a globally integrated system.”

Now, the rules-based international security system and trade order are once again “under strain” and “cannot be taken for granted,” he said, citing the example of the Cold War.

He cited Russia’s war in Ukraine and the World Trade Organization dispute settlement crisis as some of the cracks in the system.

Speaking directly to business leaders and investors at the investment conference, Chan called for global integration.

“Global businesses have a voice and their voice needs to be heard, you want an integrated world, not a fragmented world,” Chan said.

Singapore can also play its part by bridging and “operating the gap” across the fracturing blocs, he said.

“We believe there is a premium on communication, stability, progressiveness, solidarity and trust,” Chan added.

The breakdown is starting to wear on the stability of the global economy, Morgan Stanley Investment Management said in a separate note on Wednesday.

Deglobalization and the breakdown of supply chains, for example, are fueling inflation, said Andrew Harmstone, senior portfolio manager at the firm.

“World trade as a percentage of GDP has been rising very rapidly in the past, which has contributed to very low inflation. But the trend of reinvention is reducing trade,” he said.

According to the Hinrich Foundation, while terms such as “friend-shoring” have been added to the US trade policy lexicon and those of other countries such as Japan, little has been revealed about their meaning.

“If governments want to intervene in supply chains, they should be better aware of the risks than firms. But it is unclear what market failure friend-shoring policies will correct without further fragmenting the world trading system.” Halit Harput, author of the Hinrich Report, said.

Singapore refrains from taking sides but it will take consistent positions, Chan said.

“When Russia moved into Ukraine in recent months, we objected to it. People ask, is this a pro-US move? Or is it an anti-Russia or anti-China move? Or not. When the US moves into Grenada, we, when we move into Afghanistan, we object,” Chan said.

“We believe that the rule of law, especially on the international front, is the best hope for the survival of a small country.”

“And I suggest that applies not only to Singapore, but to every country in ASEAN.”

While positive words were exchanged between US President Joe Biden and Chinese President Xi Jinping on the sidelines of the Group of 20 meeting on Monday, Chan said, it was important to watch for follow-up actions.