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03
December 2018
 |
Moody's (The Total Investment & Insurance Solutions)
The US and China agreeing to put off
imposition of higher tariffs temporarily de-escalates hostilities between the
two nations, but will not bridge the wide gulf between their economic,
political and strategic interests, Moody's said on Monday. Moody's Investors
Service Managing Director, Sovereign Risk Group, Marie Diron said the US-China
relations will remain contentious as the US and China are too strong to cede
their respective national interests in negotiations with each other. The Total Investment & Insurance
Solutions
In a meeting between US President Donald
Trump and his Chinese counterpart Xi Jinpingon the sidelines of the annual G-20
Summit in Argentina, Trump agreed to postpone for 90 days a scheduled increase
in tariffs on USD 200 billion in Chinese imports, while Xi agreed to purchase a
very substantial amount of US products so as to reduce the USD 375 billion
trade deficit between the two countries. Signalling an end to the
six-month-long trade war, Trump agreed that on January 1, 2019, he will leave
the tariffs on USD 200 billion worth of product at the 10 per cent rate, and
not raise it to 25 per cent at this time.
"The announcement following the G20
meetings temporarily de-escalates hostilities between the US and China.
However, we expect 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," Diron said. The US and China, being the world's two largest
economies, 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," Diron said. She said the tensions
between the US and China will affect global credit conditions in four key
areas-- trade, technology, investment and geopolitics. 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, she added. The Total
Investment & Insurance Solutions
"At the sovereign level, we are watching
growth, investment and policy responses along with confidence indicators, such
as capital flows and exchange rates,"Diron said. According to Diron, the
Asian economies that are deeply integrated in regional and global tech and
trade chains, including Hong Kong, Korea, Malaysia, Singapore, Taiwan and
Vietnam, are most exposed to significant and lasting disruptions to trade and
investment. The Total Investment &
Insurance Solutions
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