Distinguished speakers and guests, good morning.

Introduction

1. The world economy appears to be “simultaneously resilient and fragileGiles, Charles (2025), “The paradox of the resilient, fragile global economy”, Financial Times, 14 October. http://www.ft.com/content/ac920373-600d-4654-8091-c1ad0ae198b6?shareType=nongif t”, as it adjusts to a sequence of geopolitical, trade, and technology shocks.  Global GDP performance in the first half of the year has been resilient to trade frictions and uncertainties.  But trade policies remain in flux, and underlying vulnerabilities persist.

2. To be sure, tariffs represent a major relative price shock for highly trade-dependent Asian economies, including Singapore, where the total trade-to-GDP ratio exceeds 300%.

3. It is mistaken to view these trade disturbances as purely short-term in their impact; their repercussions often extend well into the medium- and long-term. Consequently, governments must actively prepare businesses and households for a potentially prolonged transition period while the contours of a new global economic and monetary order take clearer shape.

Short-Term Impact and Adjustments

Impact on Economic Activity

4. The short-term impact thus far of tariff and non-tariff restrictions on economic activity can be broadly understood through two main channels.

5. First, front-loading and payback. Anticipation of tariff hikes often accelerates exports and imports ahead of implementation. Front-loading may have accounted for about 40% of export growth in the region in the first half of the year.The Economic Policy Group, MAS estimates are consistent with several investment banks' views, which highlighted robust shipments from Asia to the US in the first half of the year. There is broad consensus that some payback from earlier front-loading is likely to emerge in the latter part of the year. Such activity temporarily boosts trade flows but is typically followed by a growth “payback” period of weaker activity. 

6. Second, higher transaction costs and uncertainty. In April, the Trade Policy Uncertainty (TPU) Index notched its highest level since 1985, and it remains in record territory. As the lagged effects of trade restrictions cascade through, growth might slow further as broader investment plans are increasingly confined to short-term incremental commitments.

7. While the private sector has been able to adapt thus far, the global economic environment is unsettled, and growth could turn less resilient, in turn surfacing financial stability concerns, given the vulnerabilities posed by excessive leverage.

Policy Response

8. How should monetary policy respond? Up to this point, Asian central banks have generally kept policy mildly accommodative by trimming rates by a quarter or half percentage point, in countries where core inflationary pressures have eased and inflation expectations remain stable.

9. The larger policy challenge will arise if export and GDP growth slow more discernibly. In this case, the usual adjustment mechanism of exchange rate depreciation as a shock absorber may not work as well as in the past.  This is especially true if the US dollar weakening trend evident earlier this year resumes, compounding the cash flow squeeze on Asian exporters in domestic currency terms. That said, some of the real depreciation that Asian exporters would need in the event of a slowdown might be partially accommodated by the flexible downward adjustment of nominal prices and costs already seen in several Asian economies.Producer prices and GDP deflators in ASEAN-5 economies have eased discernibly on a year-on-year basis in H1 2025, with some already slipping into negative territory

Medium-Term Adjustments

Globalisation Context

10. Over the medium-term, Asia must remain open and resist retaliatory trade measures that result in self-inflicted costs. We should recognise that Asia’s export-led model has delivered unprecedented prosperity. Outward orientation, trade liberalisation, and deep integration into global value chains have underpinned decades of sustained growth and rising welfare across the region. There is strong, abiding evidence that trade, foreign direct investment, and the accompanying flow of international knowledge materially contribute to productivity gains across connected nations.Helpman, Elhanan (2025), “The Future of Foreign Trade”, NBER Working Paper 34189, August. DOI: 10.3386/w34189

11. But we also must recognise a new reality. Globalisation, as we know it, has permanently shifted. This reflects at least two key forces. First, geopolitical factors are increasingly shaping decisions that were once driven mainly by efficiency. Now, supply-chain resilience is taking greater precedence. Second, national imperatives require governments to accord greater weight to the implications of trade policy for incomes, jobs, labour markets, and overall competitiveness.Rodrik, Dani (2018), Straight Talk on Trade: Ideas for a Sane World Economy, Princeton University Press.

12. How will these forces impact the world in practice? Globalisation is unlikely to sharply reverse, but it may plateau near current levels. The global goods trade-to-GDP ratio could very likely stabilise at around 20%, down from its peak of 25% in 2008. Concomitantly, we should expect trade patterns to shift away from traditional corridors into more diverse, regional, and perhaps niche tributaries.

13. Meanwhile, the digital transformation will continue. Advances in AI and other technologies are rapidly reshaping industries and services, creating both opportunities and challenges. 

14. We must actively prepare for this new landscape. The answer is not to retreat from openness, but to adapt. Asia must remain agile, competitive, and vigilant in a changing global environment. In charting prudent responses to future shocks, both the enduring wisdom of Adam Smith and the fresh insights of leading economists today provide guidance.

Revisiting Adam Smith & Application to Current Challenges 

15. As we approach the 250th anniversary of Smith’s Wealth of NationsSmith, Adam (1776), An Inquiry into the Nature and Causes of the Wealth of Nations, W. Strahan and T. Cadell., we are reminded of the book’s insights about the division of labour and the power of specialisation, including their importance to both commerce and free trade.

16. Nobel Laureate Mike SpenceSpence, Michael (2025), “Adam Smith at 250”, Project Syndicate, August 18. https://www.project-syndicate.org/commentary/adam-smith-economic-specialization-being-reversed-and-challenged-by-ai-by-michael-spence-2025-08 has recently offered a compelling way of applying Smith’s concepts at a time of growing policy uncertainty. He argues that Smith’s model of specialisation, regarded as the bedrock of efficiency and productivity, is now being tested. As national security concerns increasingly outweigh considerations of pure economic efficiency, specialisation is likely to persist within economies but diminish across them, with some cost to diversity and loss of economies of scale. Production efficiency will drop, and consumer satisfaction will decline. 

17. At the same time, we must recognise that the very gains from scale and specialisation that drive growth can aggravate income inequality and security risks. We are reminded of the seminal though somewhat inconvenient Stolper-Samuelson theoremStolper, Wolfgang F., and Paul A. Samuelson (1941), “Protection and Real Wages”, The Review of Economic Studies, 9(1), 58-73, November. https://doi.org/10.2307/2967638 , which shows how free trade can lead to reduced wages in some industries. These uneasy dynamics are no longer abstract. They are playing out in real time with profound consequences for the future interactions between trade, technology, and employment. 

18. These ideas are highly relevant to the current context. The integration of global trade once facilitated extraordinary specialisation but now entails risks which prompt responses to tariff shocks in a “second-best” world. If the rapid advance of AI proves more labour-replacing than labour-augmenting, it will carry profound distributional implicationsAutor, David (2022), “The Labour Market Impacts of Technological Change: From Unbridled Enthusiasm to Qualified Optimism to Vast Uncertainty”, NBER Working Paper 30074, May. DOI: 10.3386/w30074. This bears resemblance to Goldin & Katz’sGoldin, Claudia, and Lawerence F. Katz (2008), The Race Between Education and Technology, Harvard University Press. characterisation of how the historical “race” between technology and education reshaped the wage distribution. If AI continues to advance more rapidly than worker’s educational attainment, skills, and capabilities, a renewed surge in wage inequality is likely to follow.This arises because gen AI is likely to shift relative demand towards AI-literate, adaptable workers even it does not lead to mass retrenchments. See for example Chen, Wilbur Xinyuan., Suraj S Srinivisan., and Saleh Zakerina (2025), “Displacement or complementarity? The labour market impact of generative AI”, Harvard Business School Working Paper 24-039.

Responding to Shocks

19. Small and open economies like Singapore and many others in Asia are price takers who cannot significantly shape, nor insulate ourselves from, these global forces. But there is much we can do to adapt. We should strengthen open regional trade and investment links to preserve efficiency and flexibility, while at the same time pursue pro-growth domestic policies. 

20. These responses must be thoughtfully layered and mutually reinforcing. I see five key factors underpinning these. 

I. First, it is crucial for societies to build up resilience – the ability to rebound, like a reed that bends but does not break when a storm erupts. This implies the flexibility to adapt to and embrace new opportunities, to nurture growth over the long-term in an era of heightened uncertainty.Brunnermeier, Markus K (2021), The Resilient Society, Endeavor Literary Press.

II. Second, we must maintain macroeconomic stability underpinned by sustainable public finances, to protect effective market functioning, and to enable agents to adopt a long-term perspective for their plans. This will encourage sustained public investments in infrastructure and stimulate private investment.

III. Third, we must support workers and businesses in harnessing new technologies. As Daron Acemoglu recently pointed out, we need to ensure a pro-worker direction for AI.Wall Street Journal (2025), “What will US Capitalism Look Like in 50 Years? Seven Experts Weigh In”, Wall Street Journal, September 21. http://www.wsj.com/economy/america-capitalism-future-expert-predictions-d854ad8b?sockid=115ad57b4c546f3d2832c0904d0e6e39 An effective response requires understanding how automation reshapes the value of human expertise within and across different occupationsBrynjolfsson, Erik., Anton Korinek., and Ajay K. Agrawal (2025), “A Research Agenda for the Economics of Transformative AI”, NBER Working Paper 34256, September. DOI: 10.3386/w34256. A recent study by David AutorThe authors find that when routine tasks are automated, jobs tend to become more specialised and better paid, even as employment declines. In contrast, when automation displaces expert tasks, wages fall as these tasks become accessible to a broader pool of workers, leading to higher employment. For more details see Autor David., and Neil Thompson (2025), “Expertise”, NBER Working Paper 33941, June. DOI: 10.3386/w33941. found highly variable impacts depending on which skills are subject to automation.  In fact, we might be confronting Samuelson-Stolper-type effects as workers see their real incomes affected in different ways depending on their intensive expertise or specialisation. Hence, it is crucial to design targeted upskilling programmes that ensure a workforce equipped to handle rising job complexity. 

IV. Fourth, we should develop place-based policies to help communities adjust to these new forces, because we now recognise that shocks can have persistent, localised effectsKline, Patrick, & Moretti, Enrico., (2013), “Local economic development, agglomeration economies, and the big push: 100 years of evidence from the Tennessee Valley Authority”, The Quarterly Journal of Economics, 129(1), pp.275–331. DOI: 10.1093/qje/qjt034.  Designing and implementing effective place-based policies requires directly targeting local development potential, ensuring the provision of local public goods and programs, and building-up local authorities’ institutional capacity.OECD (2025), “Place-Based Policies for the Future”, OECD Regional Development Studies, May 19. DOI: 10.1787/e5ff6716-en. This will allow policies to respond to spatially differentiated market failures and unlock new development pathways.

V. And finally, we need to maintain strong financial and capital markets, which can serve as powerful enablers of balanced financial intermediation.Capelle, Damien., & Bruno Pellegrino (2025), “Unbalanced Financial Globalisation”, NBER Working Paper 34121, August. DOI: 10.3386/w34121 This is important to efficiently convert surplus savings to productive investments for our biggest needs: modern infrastructure, clean energy, healthcare and education.

Conclusion

21. In the face of geo-economic fragmentation, indeed when the “numeraire” of the international trading and monetary system might be in transition, Asia needs to stay open, pragmatic, forward-looking and continue to thrive. 

22. The challenge is not to stand still or resist change, but to actively adapt, with wisdom, creativity, and resolve. In the long run, with the right choices, the sustainable and inclusive growth envisaged in the Wealth of Nations would be possible. As Smith wrote: “…it is the great multiplication of the productions of all the different arts, in consequence of the division of labour, which occasions, in a well-governed society, that universal opulence which extends itself”Smith, Adam. (2003). “Chapter 1: Division of Labour”, in The Wealth of Nations. (Alan. B. Krueger, Intro.). Bantam Classics. (Original work published 1776), pp.18-19. to all peoples. 

23. Thank you.

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