Barkin’s Uncertainty Transmission Mechanism in the Singapore Context
Policy Volatility as an Economic Shock
The sequence of tariff events Barkin describes — “Liberation Day” tariffs invalidated by the Supreme Court, replaced by a 10% global baseline under alternative legal authority, with a prospective 15% rate under Section 122 — maps almost precisely onto the uncertainty shock framework developed by Bloom (2009) and extended in subsequent literature. Singapore offers a particularly tractable case study for examining this transmission channel because of the city-state’s structural characteristics: trade-to-GDP ratios exceeding 300%, a high degree of integration into US-linked global value chains, and a manufacturing base heavily concentrated in sectors (semiconductors, pharmaceuticals, precision engineering) with long investment planning horizons and high sunk costs.
The key Bloomian prediction is that uncertainty shocks cause firms to defer irreversible investment decisions, producing a “wait and see” equilibrium in which measured activity declines not because demand fundamentals have deteriorated but because the option value of waiting rises sharply. This dynamic is particularly potent when the source of uncertainty is policy rather than market-driven, since policy uncertainty is harder to hedge and its resolution timeline is endogenous to political processes that firms cannot observe or model reliably.
Structural Vulnerability of Singapore’s Economy
Singapore’s exposure to the Barkin-type uncertainty mechanism operates through several distinct channels.
First, the investment deferral channel in manufacturing. MTI warned explicitly that new tariffs could lead to a renewed spike in economic uncertainty and cause businesses to suspend hiring and households to pull back on spending. Britcham This institutional articulation from the ministry closely parallels Barkin’s framing: the primary concern is not static tariff incidence on current exports but the suppression of forward-looking investment decisions. Singapore’s electronics and biomedical clusters are characterized by capital-intensive facilities (fabrication plants, cleanrooms, biologics manufacturing lines) with investment horizons of five to ten years. When firms cannot assign stable probabilities to whether their US-bound output will face 10%, 15%, or some higher rate — and whether that rate emerges from legislation, executive action, or court adjudication — the real options value of deferral becomes dominant. MTI noted that the pace of growth in Singapore’s manufacturing sector is projected to weaken as US tariffs weigh on demand in global end-markets. Britcham
Second, the compounding effect of sequential legal mechanisms. The transition from “Liberation Day” emergency powers to Section 122 authority — with an acknowledged time limit and further expected revisions — replicates precisely the policy volatility that Barkin identifies as uniquely damaging relative to a stable, even if high, tariff regime. Singapore’s DPM Gan Kim Yong explicitly acknowledged that “Section 122 has a time limit, and therefore we can expect that the tariff will continue to have changes in time to come,” characterizing the environment as “very unpredictable and uncertain.” Human Resources Online This official framing is notable because it mirrors Barkin’s diagnosis: it is the instability of the policy regime, not merely its level, that suppresses investment. From a real options perspective, firms cannot treat a 15% tariff as a new equilibrium to price in; they must hold investment in abeyance until the legal-political mechanism stabilizes.
Third, the “wait and see” posture in hiring. Barkin’s observation about a low hiring rate as an expression of cautious optimism rather than pessimism maps onto observable Singapore labor market dynamics. NTUC’s assessment noted that “tariffs have sent a curve ball to many industries and added another layer of uncertainty and unpredictability to the outlook,” with implications for hiring trends and workers’ long-term career prospects. NTUC Critically, this is not equivalent to a demand shock driving layoffs; rather, firms with stable core business models are electing not to expand headcount because the option value of deferred commitment is high. This distinction has policy implications: standard demand-stimulus tools (tax rebates, grants) do not resolve the underlying uncertainty that is suppressing the marginal hiring decision.
Singapore’s Indirect Exposure: The Third-Country Transmission Problem
A particularly important dimension that extends Barkin’s analysis to the Singapore context is that Singapore’s most significant tariff-related vulnerability is indirect. While Singapore is not directly affected by US tariffs on China, tariff-induced friction affects Singapore as an open economy where trade is three times GDP, since affected countries may change where companies produce their goods, resulting in supply chain reorganisation. Ministry of Trade and Industry Singapore functions as a regional hub and intermediary — its ports, financial services, and logistics networks are deeply embedded in supply chains linking Chinese manufacturing with US end-markets. Uncertainty about transshipment penalties (the US has flagged elevated tariffs for goods routed through third countries to evade tariffs on their origin) introduces a secondary layer of policy risk for Singapore’s re-export and wholesale trade sectors.
As PM Lawrence Wong noted in Parliament, capital and trade will increasingly be diverted based on political alignment and strategic considerations rather than economic efficiency, accelerating the fracturing of the global economy. Prime Minister’s Office Singapore For Singapore, this is not merely rhetorical concern: the city-state’s entire development model rests on the assumption that goods, capital, and talent flow along efficiency gradients that it can position itself to intermediate. Policy volatility of the Barkin type — where the legal basis, the rate, and the enforcement mechanism are all simultaneously uncertain — corrodes precisely this comparative advantage.
Policy Response and Its Limitations
The Singapore government’s institutional response has been significant and worth examining through the lens of the uncertainty literature. MTI established the Singapore Economic Resilience Taskforce (SERT) and introduced a Business Adaptation Grant to support enterprises in evaluating tariff impact, supply chain optimisation, and reconfiguration for a two-year period. Ministry of Trade and Industry Budget 2026 measures included a Corporate Income Tax rebate and enhanced support for overseas expansion via the Market Readiness Assistance grant. Human Resources Online
These measures are appropriately calibrated for a demand-type shock — they reduce the cost of adjustment and facilitate market diversification. However, they are less well-suited to resolving the core uncertainty transmission mechanism Barkin identifies. A firm that is deferring a SGD 500 million semiconductor facility expansion is not principally constrained by access to a grant; it is constrained by an inability to model the tariff environment over a ten-year planning horizon. Supply chain reconfiguration grants address the costs of adjustment once a decision is made, but do not shift the calculus that induces deferral in the first place. This is the fundamental policy dilemma that Bloom’s uncertainty literature surfaces: policy uncertainty generated externally (by a foreign sovereign power) cannot be easily resolved by the domestic government of a small, open economy.
Assessment
Singapore’s experience constitutes a well-specified empirical case for Barkin’s framing. The structural features that make Singapore distinctive — its openness, its role in global value chains, its concentration in capital-intensive, trade-exposed manufacturing — amplify the uncertainty transmission mechanism rather than buffering it. PM Wong’s observation that “protectionism is already bad — unstable protectionism is even worse” because of its negative effect on business confidence and investment Diplomatic Network is essentially a policy-practitioner restatement of Bloom’s theoretical result. The key implication for Singapore policymakers is that the appropriate counterfactual to evaluate is not a 15% tariff regime against a 10% tariff regime, but a stable 15% regime against the current environment of sequential legal mechanisms, contested authority, and prospective escalation. The latter environment carries a substantially higher welfare cost than its nominal tariff rate implies, because the “wait and see” posture it induces suppresses the investment and hiring activity on which Singapore’s long-run productivity growth depends.