Increased US tariffs on Chinese goods will weigh on economic growth in China and the rest of Asia, given the importance of the US and China as sources of export demand and investment, Moody’s Investors Service said on Tuesday.
“We expect the tariffs to have a negative effect on most Chinese companies, either by the direct impact on their exports or the indirect impact through the domestic supply chain,” Moody’s said in a report.
In particular, China’s high-tech sectors, such as electronics, communications and semiconductors, are likely to be adversely affected, as they have high exposure to the tariffs and the restrictions that the US applies on these sectors, it said.
The US aerospace, automotive, agricultural and energy sectors are all likely to be adversely affected as China adopts a deliberate policy of trade diversion in response to the US tariffs, it added.
Export-oriented economies in Asia might be particularly exposed to the risk of global and regional trade downturns, the international ratings agency said.
The deterioration in the trade relationship between the US and China will lead to increased fragmentation of the global trading system and might weaken the rules-based system that has underpinned global growth for the past several decades, it said.
“The rise in tensions will contribute to a renewed slowdown in the global economy, not only though the trade channel, but also through the impact on sentiment and risk aversion,” Moody’s said.
Nonetheless, the ratings agency stood by its prediction that trade negotiations between the two countries would continue and that a deal of some sort would be eventually reached, although the risk of a complete breakdown in trade talks has also increased.
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