What most have dreaded has occurred; the US is going ahead with increased tariffs, up from 10% to 25%, on US$200bn of Chinese goods, in the latest bombshell to be dropped in the protracted US-China trade war. The move, which takes immediate effect, has come when both parties continue to work towards the settlement of a deal. It equates to a serious escalation in the trade spat and will hit exporters and importers from both countries hard.
Ratings Agency, Moody’s’ released a point by point analysis of the global economic damage likely to be wreaked by the increase in tariff rates.
“The 25% tariffs imposed by the US on $200bn of Chinese imports from the previous 10% exacerbates the uncertainty in the global trading environment, further raises tensions between the US and China, negatively affects global sentiment and adds to risk aversion globally.
“The higher tariffs could also lead globally to the repricing of risk assets, tighter financing conditions, and slower growth,’’ the agency said.
Moody’s’ suggested, 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 agency added.
The Chinese advanced technology sector will also likely be adversely affected, as the US intensifies restrictions on that sector.
And for the rest of Asia’s export-dependent economies, a slowdown in China will dampen growth rates.
“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’ concluded.
Providing a Hong Kong perspective, Paul Walsh, chief executive of Newtimes Development, a Hong Kong-based garment sourcing company, told The South China Morning Post: “from a factory owners’ point of view, the hardest thing is uncertainty.
“With grey ares, it is hard to plan. You put in place plans and then get a tweet which can change everything. There’s a sense of fatigue, people want to be able to make plans.”
Mr Walsh said the tariff increase of 25% was a game-changer and added, he expected it to hasten a shifting of manufacturers out of China.
Speaking for the port, Modern Terminals’ Group managing director, Peter Levesque said resignedly:
“All we can do as a business is focus on what’s in our control, and hope that China and the United States can come to some kind of agreement on the core issues as quickly as possible”