I. The Structural Instability of the Post-IEEPA Tariff Regime
The most immediate risk is one of legal and administrative fragility. Section 122 of the Trade Act of 1974 is a genuinely novel instrument in this context — it has never before been invoked in US history The Opal Group, which means courts have no established interpretive framework for it. The new tariffs are certain to face legal challenges, and may be placed on hold or prohibited by a temporary injunction. The Opal Group This creates a paradoxical risk for trading partners: the very unpredictability that makes the current regime threatening also makes it unreliable as a stable basis for trade planning.
A deeper structural problem has emerged for countries like Japan that struck bilateral deals under IEEPA. Those negotiated deals were structured around IEEPA tariff rates as the baseline CNBC, meaning the Section 122 transition has effectively destabilised the legal foundation of those agreements. Countries that cooperated early — accepting a 10% reciprocal rate — now find themselves disadvantaged relative to those that resisted. Those countries that were early in striking deals with the United States after the Liberation Day tariffs have been left holding the bag, whereas countries that resisted, like Brazil, may be feeling more vindicated. CNBC This is a significant diplomatic-strategic irony: compliance is being penalised while resistance is being rewarded by market dynamics.
Furthermore, Section 122 imposes a statutory 150-day ceiling, meaning the current regime expires around late July 2026 unless Congress extends it. Section 122 has a time limit, and therefore we can expect that the tariff will continue to have changes in time to come. Ministry of Trade and Industry This near-term cliff creates additional uncertainty for firms making investment and supply chain decisions.
II. Singapore’s Risk Exposure: Counterintuitive but Real
Singapore’s position is analytically interesting because it presents a paradox of relative versus absolute competitiveness. On the relative dimension, DPM Gan Kim Yong is correct that if the tariff is applied across the board, Singapore’s export competitiveness would not be relatively harmed The Online Citizen — a uniform 15% does not differentially disadvantage Singapore versus, say, Vietnam or Indonesia. Singapore also benefits structurally from the fact that the US ran a goods trade surplus with Singapore of US$3.6 billion in 2025 The Star, making Singapore a less politically contentious target than deficit countries.
However, the absolute-level risks are more serious and less well-acknowledged in official messaging. Three deserve close attention.
First, the pass-through effect on key sectors. Semiconductors and pharmaceuticals are not subject to the Section 122 tariffs, as they may be the subject of Section 232 tariffs that have not yet been imposed. Ministry of Trade and Industry This is a double-edged carve-out. The exemption provides short-term relief, but the explicit mention of pending Section 232 action introduces a more severe and targeted future risk — Section 232 allows permanent, sector-specific tariffs justified on national security grounds, without the 150-day constraint. For Singapore, whose electronics and precision engineering sectors are central to its export profile, this represents a latent but potentially more damaging threat than the current flat tariff.
Second, the demand compression effect. Tariffs mean higher costs globally, and with higher costs it will slow down economic investments, trade, and demand The Star — as DPM Gan acknowledged. Singapore’s economic model is fundamentally entrepôt in character; it depends not merely on bilateral trade with the US but on regional and global trade volumes passing through its financial and logistical infrastructure. A generalised slowdown in Asian trade flows harms Singapore disproportionately relative to more domestically-oriented economies.
Third, the “ally penalty” dynamic. Singapore, the UK, the EU, and Australia — countries that had received a baseline 10% rate — will now see their trade-weighted tariff rate rise as IEEPA tariffs are replaced by Section 122 duties, while countries such as Brazil, China, and India will see such levies fall. CNBC The net effect is that the Section 122 transition has inadvertently narrowed Singapore’s tariff advantage relative to its competitors in Southeast Asia and the broader Global South. Singapore’s status as having the lowest tariff rates in Asia is eroded not because it was punished, but because others were comparatively relieved.
III. South China Sea: The Geopolitical Risk Multiplier
The tariff landscape cannot be analytically decoupled from South China Sea dynamics, for several reasons.
The most direct mechanism is supply chain disruption risk. Approximately 24% of global maritime trade passes through the South China Sea FreightWaves, and should tensions intensify, maritime firms may avoid the area altogether, potentially triggering significant trade delays and escalating prices, with substantial risks for key Asian ports in Singapore, Malaysia, and Taiwan. Maritime Fairtrade For Singapore, which sits at the intersection of the South China Sea and the Malacca Strait — the world’s most important maritime chokepoint — any militarisation of these waters is existential in economic terms.
The second mechanism is indirect: US tariff pressure on China may perversely increase South China Sea instability. As the tariff regime compresses Chinese export revenues and constrains Beijing’s economic options, the political incentive to assert sovereignty claims and project strength in adjacent waters could intensify. Philippine Navy officials in January said Manila expected Chinese activities in the South China Sea to persist in 2026, arguing they were evolving into a more persistent deterrence posture. Crisis Group This is not yet escalation to armed conflict, but it is institutionalisation of coercive pressure.
The consensus among security analysts is that outright war remains unlikely in 2026 — Beijing’s military coercion in the South and East China Seas is unlikely to escalate beyond gray zone activities Stimson Center — but the “gray zone” itself is widening and deepening. China engaged in dangerous military activities against Japan following PM Takaichi’s statement on Taiwan in late 2025, including Chinese fighter jets locking radar on Japanese aircraft. ChinaPower Project This matters to Singapore not only as a security concern but because Japan is a central node in the regional production network that Singapore’s financial and logistics sectors service.
A scenario worth modelling — not necessarily as a base case but as a credible tail risk — is one in which US tariff pressure on China hardens Beijing’s position in South China Sea negotiations, disrupts ASEAN’s Code of Conduct process (which the Philippines is chairing in 2026 with a stated ambition of completing by year-end), and precipitates a shipping incident that triggers insurance market repricing and route avoidance. The Malacca Strait disruption scenario alone could add meaningfully to Singapore’s cost of intermediation and reduce port throughput.
IV. The Compounding Risk Matrix
What makes the current environment particularly difficult to manage is the interaction between these risks rather than any single one in isolation. The Section 122 tariff is time-limited and legally vulnerable, which creates regime uncertainty. That uncertainty, combined with Trump’s explicit threats to use Section 301 and 232 instruments as punitive escalation tools against countries that “play games,” produces a strategic environment where signalling has become unreliable and compliance strategies are difficult to formulate. Japan’s posture — reaffirming the 2025 deal while declining to renegotiate — is a rational attempt to reduce exposure to this uncertainty, but it does not resolve the underlying ambiguity about whether existing preferential terms survive the Section 122 transition.
For Singapore, the analytically prudent framing is that the absolute tariff number (15%) matters less than the institutional instability around it. The level of real GDP remains persistently 0.1% to 0.2% smaller in the long run depending on the duration of Section 122 tariffs, The Budget Lab at Yale according to Yale Budget Lab projections — modest at the macro level, but meaningful for an economy as trade-exposed as Singapore’s, and potentially compounded significantly if the South China Sea risk premium rises simultaneously.
Singapore’s stated response — engaging US counterparts, activating SERT, leveraging Budget 2026 measures, and encouraging firms to diversify and move into higher value-added products — is the correct toolkit for managing the known risks. The larger challenge is the unknown ones: further Section 232 actions, a South China Sea incident that disrupts shipping lanes, or a breakdown in US-China managed stability that triggers secondary sanctions or export control escalation affecting the technology sectors on which Singapore’s next growth phase depends.