New Delhi, April 15: There are no winners in a trade conflict and the tussle between China and the US raises the risk of economic and geopolitical fallout, a report by S&P Global Ratings said on Tuesday.
Home to sizable manufacturing activities, Asia-Pacific is highly dependent on exports to the U.S. and China for growth. At the same time, Asia-Pacific depends on the US mostly for security. The region could find itself pushed to take sides or walk a delicate line between the two large economies, the report stated.
To counteract tariffs, Asia-Pacific governments are exploring the formation of regional trade blocs or bilateral trade agreements. These efforts could accelerate, expediting the need to relocate supply sources and production.
“Businesses may hold back investments as they reassess the trade landscape. To offload excess production, exporters may seek new markets and cut prices. For some economies, locally made products may be unable to compete against the influx of these competitive exports,” the report noted.
To insulate local industries, affected economies might impose protectionist measures, thereby escalating trade tensions. Governments may use economic stimulus to reduce the hits to businesses and households, which would worsen fiscal balance sheets.
In our view, small and export-dependent economies would face an outsized hit. Unsurprisingly, if the paused US tariffs are ultimately implemented as initially announced, the economic fallout for global markets would be broad and deep.
“Trade tensions that remain unresolved as the pause ends could have a marked impact on credit quality. Either way, the pause is for 90 days, and the prevailing uncertainty is likely to further undermine business and consumer confidence, heightening concerns about corporate investment, employment and consumer spending, and overall economic activity,” the report stressed.
China’s economic growth is seeing rising downside risk amid rising trade tensions with the US as its export engine falters from weaker global demand. The country’s domestic growth engine remains subdued, given the lingering real estate crisis, which is dragging down confidence.
For the manufacturers, revenue and profit compression is weighing down capital expenditure and labour needs. Cautious spending among households could intensify amid rising unemployment risks and a gloomier global backdrop, according to the report.
IANS