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Lim Boon Heng’s note on history, economics AND trade is proof why CCS’ point about trade is not “mehhh”

By June 1, 2020Current

TL;DR – CCS’ senpai, Lim Boon Heng, explains history, economics, supply chain AND trade in layman’s terms.

I’ve never seen so many fellow Singaporeans share sheep images before this weekend.

You must have heard/read/watched by now the CCS episode. Hehe, CCS ~ Cotton Comes from Sheep…. NOT!

Over the weekend, Minister for Trade & Industry Chan Chun Sing was responding to a question about the “anti-globalisation” sentiment, and how the government hopes to continue connecting local SMEs to international markets post Covid-19. he was making the important point about how “it would not be possible for Singapore to survive without trade”.

 

Min Chan was using the example of how even as we set up our own mask manufacturing facilities here in Singapore, there’s still no running away from trade.

Even with simple products like a surgical mask with just six parts, how many of these six parts are we able to grow or source locally? We’re talking about raw materials like cotton, polypropylene and rubber bands, etc. Do we have them here?

Unfortunately, Min Chan got himself tangled up a little and said we don’t have sheep to get our cotton from, HAHAHAHAHA! Was he confused cos “cotton wool”?? Or cos either his brain or his tongue was working too quickly?

Anyway, for fear of misleading young minds, he put up a clarification on his own FB page quite swiftly.

Some fractions of the internet world went ballistic and started mocking and ridiculing him. You know, the usual trolls and memes… Kinda reminded me of that one time when PM lee accidentally said “mee siam mai hum” #^.^#

I am not writing this piece to argue about whether with his million dollar salary, Min Chan should or should not have made that mistake. Personally, I think he’s just human like all of us. We all have moments like this, no matter how much we’re paid.

I’m writing this lest we lose the plot in our frenzy to share sheep images. His whole point was to highlight how even as we pursue self-sufficiency, it’s never gonna be in its purest, most absolute form as we will still need to source raw materials from outside of Singapore.

We’re a teeny tiny island state and like Min Chan said, we don’t have much underground to dig. We also don’t have large masses of land to grow things and all. So yea, I’d say the deglobalisation movement is a threat to us. And with the COVID-19 situation, we’ve seen some countries exercise protectionism which aggravates the situation.

It’s very important, hence, for Singapore to diversify our supply sources, sometimes even if it may not make immediate economic sense. Like why import eggs from Thailand when we can get it cheaper and faster from Malaysia?

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Lim Boon Heng explains history, economics, supply chain AND trade in layman’s terms

Now the younger Singaporeans may not be familiar with this name.

Mr Lim Boon Heng has an illustrious career, and has spent over three decades in public office . He entered politics back in 1980, and entered the Cabinet when he became a Minister in the Prime Minister’s Office (PMO) in 1993. He had a long career with the labour movement. He spent 26 years at the National Trades Union Congress (NTUC), with the last 13 as its Secretary-General. So yes, hehe, this means Mr Lim is Min Chan’s senpai/sunbae.

Mr Lim is currently chairman of Temasek Holdings, and also chairman of NTUC Enterprise Co-operative. Guess the labour movement’s in his blood. He recommends readings and shares his thoughts quite often with NTUC staff via email.

He asked, “Can a country be self-sufficient?”

One such recommended reading, accompanied by his thoughts, came through on Sunday. Coincidentally, it’s on the topic of self-sufficiency and trade. I thought his comments added context and texture to what Min Chan was trying to say.

I loved how Mr Lim explained the situation in such simple language, so I asked him for permission to share with more people. He said yes, so here I am!

Here’s Mr Lim’s recommended reading:

Here’s Mr Lim’s sharing:

Before I touch on the attached article on rare earths, let’s first examine whether a country can be self-sufficient.

Actually when a country has no choice, it has to be self-sufficient – make do with whatever it has. That was what it was like thousands of years ago, when communities were self-contained. So communities develop differently, in accordance with whatever resources were at their disposal. Naturally, since food is essential, communities were agrarian societies, but they ate different foods that their climates supported.

Even so, communities began to trade with one another. I sell you what you don’t have, and I buy from you what I don’t have. As an example, trade developed between China and Europe through the Silk Road. That was how tea and silk was introduced from China to Europe. Through the exchange of goods, the quality of life improved.

As time went by, trade between countries grew. But countries do make the same things. So people complain if goods from another country undercut them in price. So governments introduced tariffs to ‘level the playing field’.

But thinkers realize this was slowing down economic growth, and improvement of life for peoples. They came up with the concept of ‘comparative advantage’. In other words, I should not compete with you if you have comparative advantage in some things. I concentrate on where I have comparative advantage, so I sell these, and with the money, I buy what I myself don’t make. To regulate this globally, nations agreed on the setting up of the World Trade Organization (WTO). Tariffs were progressively reduced. If a country competes unfairly, then punitive measures were meted out when the WTO judges gave their verdicts.

So some countries focus on agricultural goods, or minerals, and trade for manufactured goods like cars, household white goods like refrigerators, washing machines, vacuum cleaners.

Countries then negotiate free trade agreements (FTAs), so no tariffs are imposed.

Over time, companies diversified the supply chain, making components in countries where there is comparative advantage. Take for example, the iPhone. Batteries from S Korea and China, Cameras from Sony Japan, Chipsets and processors from S Korea and Taiwan, display from Japan and S Korea, DRAM from Taiwan and S Korea, eCompass from Japan, Fingerprint sensor authentication from Taiwan, flash memory from S Korea, audio chipset from US, baseband processor from US, screen and glass from US etc. The components are finally assembled in China.

The Covid-19 pandemic has laid bare how countries can become vulnerable when the supply chain is disrupted. When China imposed a national lockdown, components for cars could not be exported, so car factories in Europe had to shut down. The manufacture of some drugs in the US was disrupted because components made in China were also cut off. It became apparent that 2 countries – China and India – supplied 80% of the components of generic drugs. So countries are now thinking of what they need for national resilience.

How much should be stockpiled?

How diversified should the sources of supply be?

If transportation is disrupted, does it make sense to have local production (on-shoring or re-shoring), or production nearby (near-shoring)?

Should countries have their own airlines and/or shipping line they have influence over to bring in goods they need?

These same questions can be asked, and should be asked, in Singapore. For example, to make Covid-19 test kits, the essential reagents come from the US and Germany, and at one point, there was restrictions on the export. The supplier of swabs was from Italy, and that supply was cut off when Italy faced a spiraling crisis.

We had a shortage of surgical face masks. The bulk came from Wuhan! Our supply of N95 masks was cut off when Taiwan imposed an export ban. Some asked why we do not make them in Singapore. Well, setting up production lines is one thing, securing the material for making masks in another. Few know that we have had to scour the world to secure sufficient supply of these before we could manufacture masks in Singapore.

Some asked why we can’t be self-sufficient in eggs – we do have egg farms. Someone has to supply the day old chicks that we can feed, grow until they lay eggs. The feed for the chickens are all imported.

You may ask too, why we cannot grow our own vegetables, since roof-top farming is possible, and we may also have vertical vegetable farms.

Again, there is a supply chain. Where do the seeds come from? The supply of grain seeds for the world is dominated by 3 or 4 big suppliers.

One big supplier is from the US, a second one is European, and a third one is owned by China (only in the last few years). And we need fertilisers too. So to organize urban farming, we have to look at the supply chain that makes it possible. We do have a 30 by 30 plan for food – 30% self sufficiency in food by 2030. However, we should not be just looking at it from the self-sufficiency point of view. We should be looking at it from the cost competitiveness point of view, which means that whatever it is we do must have enough scale to bring the cost to the competitive level, which means we must produce not just for ourselves, but for export too.

Denmark is competitive in certain meat products – because the scale is much more than what Denmark can consume.

Netherlands is the second largest exporter of food, despite its small land area and small population.

But we may be self-sufficient in most vegetables and eggs, and fish, but we still have to import rice.

So trade is still important, whatever you do. For the small little red dot, staying resilient is much tougher than big countries.

There have been complaints that countries are not playing fairly, not opening their markets, or not providing a level-playing field.

But there has been also a contest for technological superiority – and 5G is key to it. So the US is choking off the supply of components to Huawei. In response, some time ago, China hinted at retaliation by controlling the supply of rare earths. Hence the attached article. Rare earths are needed for making the most sophisticated weapons in the world too. The sad thing is that when countries consider others as strategic competitors, the trading system will be affected.

Meanwhile, I will leave you with this mehhh comment. Have a good week ahead!

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Maggie O

Author Maggie O

Digital extrovert. Social introvert (warning: 93% introverted!) In the day, I work to put cai-png on the table and ice-cream in the fridge. In the night, I read a lot and write a little. Also, all views expressed in my contribution pieces here are based on my personal opinions, and they do not reflect the ideas, ideologies, or points of view of my employer (past, current and future).

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