Tuesday 25 June 2019

Trade war between China and US not yet inevitable - S&P

US President Donald Trump arrives at Andrews Air Force Base
US President Donald Trump arrives at Andrews Air Force Base

Colm Kelpie

US President Donald Trump's long-threatened package of trade sanctions on China has landed, but a trade war isn't yet inevitable, Standard & Poor's Global Ratings has said.

It comes amid increasing optimism that the two countries will be able to avert a full-scale trade war after Premier Li Keqiang said China and the US should maintain negotiations.

He also reiterated pledges to ease access to his country for American businesses.

Li told a conference that included global chief executives that China would treat foreign and domestic firms equally, would not force foreign firms to transfer technology and would strengthen intellectual property rights, repeating promises that have failed to placate Washington.

The United States asked China in a letter last week to cut a tariff on US cars, buy more US-made semiconductors and give US firms greater access to the Chinese financial sector, the 'Wall Street Journal' reported yesterday, citing unidentified sources.

In a note to investors, S&P said the threatened tariffs and investment restrictions on China won't likely cause deep pain to the Chinese economy, nor will they have a material impact on corporate borrowers in either country.

"More aggressive moves could escalate into a full-blown trade war between the world's two largest economies - with spill-over effects on global business confidence, investment, and growth," said S&P Global Ratings managing director Terry Chan.

S&P said a preliminary analysis of potential tariffs shows that the overall impact on Chinese corporates and banks will be contained because the US represents only about 15pc of China's exports, and China's domestic activity now drives its economic growth rather than exports.

"The near-term effects on corporate credit will likely be muted - barring an immediate escalation of retaliatory measures, but there will still be some impact for certain sectors, depending on their reliance on the Chinese market," said S&P Global Ratings managing director David Tesher.

Alarm over a possible trade war has chilled financial markets as investors anticipated dire consequences should barriers go up due to President Donald Trump's bid to cut the US deficit with China.

The Economic and Social Research Institute has warned that a 1pc fall in global GDP could have a like-for-like impact on Irish GDP, given the open nature of the economy here.

But despite a steady stream of fierce rhetoric from Chinese state media lambasting the United States for being a "bully" and warning of retaliation, Chinese and US officials are busy negotiating behind the scenes. (Additional reporting Reuters)

Irish Independent

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