Moody's warns US-China trade wars weigh on macroeconomic outlook, could deter growth

By ANA Reporter Time of article published Aug 23, 2018

Share this article:

JOHANNESBURG - Rating agency Moody's Investor Services said on Thursday that US trade tensions with China were more likely to deteriorate this year and will dampen global growth in 2019, while emerging market countries remain inherently vulnerable to the risk of capital outflows associated with tightening global liquidity.

This as the trade war between the world's largest economies escalated further when the US and China on Thursday enacted tariffs on U.S.$16 billion worth of imports each.

The US imposed 25 percent tariffs on another U.S.$16 billion of Chinese goods, affecting 279 Chinese products, including chemical products, motorcycles, speedometers and antennas. China responded immediately with 25 percent tariffs of its own on an equal amount of American goods, including chemical products and diesel fuel.

Last month, Washington imposed tariffs on U.S.$34 billion worth of Chinese goods ranging from drainage pipes to agricultural products and railway wagons, with Beijing retaliating with duties on the same amount of US products, including coal, petrol, vehicles, motorcycles and medical equipment.  

Elena Duggar, chair of Moody's macroeconomic board, said that financial market volatility and reversals of capital flows away from emerging markets were to be expected amid tighter global financing conditions.

"We expect to see more restrictions on Chinese acquisitions of firms in the US and Europe, and our base case scenario now assumes that the US administration will go forward with some of the proposed restrictions on imports from China," Duggar said.

Moody's published its quarterly Global Macroeconomic Outlook update on Thursday looking at various issues, including global growth, US trade wars, trade in emerging market countries and rising oil prices.

Madhavi Bokil, Moody's vice-president and the lead author of the report, said that most of the impact of the trade restrictions on economic growth would be felt in 2019. 

"The magnitude of the macro impacts will depend on market sentiment. Tightening of financial conditions through asset price and currency adjustment and a broader hit to business and consumer confidence are now more likely than a few months ago and have the potential to derail the global economy," Bokil said.

Moody's said it anticipates an implementation of further tariffs on US imports from China, in addition to the initial 25 percent tariffs on U.S.$50 billion worth of imports as well as the steel and aluminum tariffs currently in effect, and retaliatory action by the Chinese government was likely to follow. 

- African News Agency (ANA)

Share this article: