US-China call trade war truce but can it last?
The meeting between Donald Trump and Xi Jinping and the subsequent announcement that new trade tariffs would be suspended at least temporarily appears to have temporarily de-escalated hostilities between the US and China.
However, Moody’s expects US-China relations to remain contentious. Narrow agreements and modest concessions in their ongoing trade dispute will not bridge the wide gulf between their respective economic, political and strategic interests, the credit ratings agency says.
As the world’s two largest economies, the US and China are too strong to cede their respective national interests in negotiations with each other. However, an economic cold war that leads to decoupling would be costly for both countries, owing to their deep links with each other. Therefore, relations between the two powers will swing between conflict and compromise.
Moody’s added that tensions between the US and China will affect global credit conditions in four key areas: trade, technology, investment and geopolitics.
US-China tensions will cast a pall over global credit conditions and quality. The impact will be felt at the global, country, sector, and company level.
Continued tensions would disrupt global trade, erode the effectiveness of the multilateral international trade regime and dampen growth. As every new development is reflected in financial markets, it will affect valuations and borrowing costs for many debt issuers.
Moody’s continues to watch growth, investment and policy responses along with confidence indicators, such as capital flows and exchange rates. At the sector and company level, possible changes in trade, supply chains, investment and competitiveness will affect revenues, costs, profits, and leverage.
Asia’s economies that are deeply integrated in regional and global tech and trade chains, namely Hong Kong, Korea, Malaysia, Singapore, Taiwan and Vietnam, are most exposed to significant and lasting disruptions to trade and investment, Moody’s said.
