Risk of complete fall-out of US-China talks: Moody's

The already tense situation between the US and China which has roiled the global financial markets and has pulled down global growth, may worsen from here on as the risk of a complete fall-out in the two countries` trade talks has increased, Moody`s said on Friday. The US on Friday more than doubled tariffs on $200 billion worth of Chinese products from 10 per cent to 25 per cent, in a sharp escalation of the trade tensions to which China has said that it would respond with necessary countermeasures.  "While we believe that a trade deal will eventually be reached between the US and China, the risk of a complete breakdown in trade talks has certainly increased," Moody`s said. On the immediate impact on the export sector, Moody`s said that in the rest of Asia`s export-dependent economies, a slowdown in China will dampen the growth rates. 

The tariffs exacerbate the uncertainty in the global trading environment. It further raises tensions between the US and China, negatively affects global sentiment and adds to risk aversion globally, Moody`s said.  "The higher tariffs could also lead globally to the re-pricing of risk assets, tighter financing conditions, and slower growth," it added.  In addition, the trade tensions could result in an increasingly fragmented global trading framework, weakening the rules-based system that has underpinned global growth, particularly in Asia, over the past several decades. 

For China in particular, the higher tariffs will have a significant negative effect on exports, against the backdrop of a slowing economy.  Further policy easing will mitigate only some of the impact and increased uncertainty and weaker business sentiment will hinder private investment decisions.  The Chinese advanced technology sector will also likely be adversely affected, as the US intensifies restrictions on that sector.