By The Nation
Although the agreement will likely partially relieve recent negative sentiment in the financial markets and support near-term growth, it stops short of removing existing tariffs, Michael Taylor, managing director of Moody’s Investors Service, said on Monday.
“We therefore maintain our baseline view that the tariffs implemented to date will shave 0.1 percentage point off US growth and about 0.2 percentage point off China’s growth this year through direct trade channels,” he said.
These forecasts do not take into account the indirect effects of the tariffs, which are likely to increase their overall impact, especially in case of a more significant hit to sentiment or rise in risk aversion in the event that persistent policy uncertainty affects investment than we currently assume, said Taylor. However, Moody’s expects China will continue to ease policy in an effort to offset the impact of the existing tariffs and that major central banks will maintain their bias towards more accommodative policy.
While few details of the agreement have been disclosed so far, the truce on further tariff escalation appears to indicate that both sides have a desire to make progress in resolving their current disputes, underpinned by the United States’ relaxation of the restrictions it had placed on Huawei, he said.
“However, significant obstacles remain to obtaining a long-term agreement, due to the lack of an agreed mechanism for dispute settlement, and the considerable differences that exist between the two sides on core issues such as technology, intellectual property, industrial policies, and the creation of a level playing field for foreign firms operating in China.
“As such, the talks could still suffer further setbacks and the risk of further tariffs has not been removed yet,” Taylor said.