US-China accord won’t have much global impact: Moody's

Chinese President Xi Jinping shakes hands with US President Donald Trump before a bilateral meeting on the sidelines of the G20 Summit in Osaka on June 29 AFP

Rating agency says ‘significant obstacles remain to obtaining a long-term agreement’ on trade and that risk of further tariffs has not yet been removed 


Moody’s Investors Service said Monday that last week’s  agreement between US President Donald Trump and Chinese President Xi Jinping did not alter its world economic outlook. 


"The agreement reached between President Trump and President Xi at the G20 summit to restart trade talks does not fundamentally change Moody’s outlook for the global economy,” the US credit rating agency said in a statement. 

 

Agreement ‘stops short of removing existing tariffs’

Released by the company’s Hong Kong unit, the statement said the accord was expected to partly relieve negative financial market sentiment and support near-term growth. 


But "it stops short of removing existing tariffs,” the rating agency said. 


“We therefore maintain our baseline view that the tariffs implemented to date will shave 0.1 percentage point off US growth and about 0.2 percentage point off China’s growth this year through direct trade channels.”

 

Moody’s noted that its forecasts did not take into account the indirect effects of the tariffs.


These are likely to increase their impact, "especially in case of a more significant hit to sentiment or rise in risk aversion in the event that persistent policy uncertainty affects investment than we currently assume,” it said.


China expected to continue easing policy

“However, we expect China will continue to ease policy in an effort to offset the impact of the existing tariffs and that major central banks will maintain their bias towards more accommodative policy."

 

Moody’s said the “truce” on further tariff escalation seemed to show that “both sides have a desire to make progress in resolving their current disputes.”


‘Risk of further tariffs has not been removed’

But “significant obstacles remain to obtaining a long-term agreement, due to the lack of an agreed mechanism for dispute settlement, and the considerable differences that exist between the two sides on core issues such as technology, intellectual property, industrial policies, and the creation of a level playing field for foreign firms operating in China,” it said.

 

“As such, the talks could still suffer further setbacks and the risk of further tariffs has not been removed yet.”

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