The Great Trade War : Singapore : The Island That Commerce Built : The tiny, strategically located Southeast Asian nation depends on the movement of goods for survival.

It seems symbolic that the Singapore government put its Trade Ministry atop a 50-story building made to look like a stack of gold coins. The view from the offices is of thousands of cargo containers waiting to be loaded aboard ships.

Singapore’s lifeblood is trade, and perhaps more than any other country, it depends upon the movement of goods for its survival. Trade totaled $90 billion in 1992--twice the country’s gross domestic product, which is a measure of a country’s output of goods and services. In America, by contrast, trade accounts for only about 15% of GDP.

But Singapore is just an island of 246 square miles, a little smaller than New York City. It has no natural resources (even its milk is imported from Australia) other than its population of 2.6 million people.

As real estate speculators are fond of saying, Singapore has three great advantages: location, location and location. It sits midway between the Middle East and Japan on the prime sailing route of most ships, making it a natural port of call.

Because Singapore depends so heavily on trade, the government is one of the world’s most ardent supporters of low tariffs and no customs barriers. Most consumer goods enter Singapore without duties of any kind, at prices comparable to those in the United States, causing an influx of shoppers from the region.

Singapore also supports such things as a “free skies” policy that allows airlines of virtually every nation to fly here without restrictions.

Along with a beautiful natural harbor, location was what presumably attracted Sir Stamford Raffles when he acquired the island for the British East India Co. in 1816. The land itself was then mostly malarial swamps.

Singapore quickly became a center for Southeast Asia’s entrepot trade, a vast warehouse for goods being shipped from one place to the next. Indonesian spices and Malaysian rubber would be loaded aboard ships bound either west toward Europe--primarily to Britain, the colonial master--or east toward America.

“We didn’t produce anything ourselves,” recalls S. Dhanabalan, a banker who is now Singapore’s minister of trade and industry. “We became a distributing center for European and American countries to this part of the world.” Because of its location, Singapore also became a service center for shipping itself, an undertaking that has since blossomed into a major ship repair business.

But even with steadily growing trade from the region, it became clear soon after independence in the late 1950s that simply shipping other people’s goods was never going to provide enough employment for the country. So it decided to industrialize.

First it tried import substitution, encouraging local industry to manufacture goods that would normally be imported from overseas. But the local market was small and clearly would never be big enough to provide much capital.

The early 1960s was a time of great ferment in global commerce, with U.S. multinational firms like IBM and General Motors being criticized, as Japan is today, for trying to dominate world trade, especially in Western Europe. Singapore hit upon the strategy of not only not criticizing the multinationals, but of actively appealing to them to set up factories here.

“We didn’t have the indigenous entrepreneurs Hong Kong had, so we had to go after multinationals,” said Lee Tsao Yuan, an economist at Singapore’s Institute of Policy Studies. “They came for labor intensive activities such as assembly.”

After heavy campaigning, Texas Instruments became the first multinational to set up a manufacturing facility here, followed by National Semiconductor.

The multinationals were attracted to Singapore for many reasons, but good infrastructure led the list. There is a world-class port and airport and probably the best telecommunications system in the world.

In addition, the country’s authoritarian system of government meant political stability and virtually guaranteed there would be no strikes or other labor disputes--policies that persist to this day.

“It was a smart policy from Singapore’s point of view because the multinationals drove the economy, providing full employment and such things as technology transfers,” said Lee. Singapore firms sprang up to provide spare parts and services to the multinationals, creating even greater wealth in the island.

The success of the policy is evident in the statistics: Singapore’s per capita GDP in 1980 was about $4,700. Last year it was $15,000. Trade rose from $88 billion to $127 billion in the last three years alone, when business was said to be nearing a plateau.

Economists believe that probably no more than 40% of trade these days involves goods just passing through Singapore without any value being added. One company in India, for example, reported that it still ships its goods to Singapore for transfer to larger vessels and reshipment to Europe. But much of the volume of re-exports consists of oil products sent here from the Middle East and then refined.

A strong currency means Singapore wages are not now competitive for labor-intensive industries such as textiles and electronics assembly, which are increasingly moving to nations like China and Thailand.

Singapore is hoping to carve a new niche in its old role as a regional hub by creating a huge foreign exchange market to compete with Chicago, an oil trading market and a banking center for Southeast Asia.

It has already become a regional center for aircraft maintenance, ship repair and high technology research and development. And the government hopes that multinationals will design products and get them ready for manufacturing here--a process called prototyping--and then make them in neighboring countries where labor is still relatively cheap.

A couple of years ago, it developed this approach into a theory called the Growth Triangle, with Singapore sitting strategically between Indonesia and Malaysia, providing services and headquarters support to factories in those countries.

And for the first time, Singapore firms are traveling far afield, to such places as China and Vietnam, setting up operations to produce goods and services.