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S&P: Trade tensions threaten 'favorable' global credit conditions

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S&P: Trade tensions threaten 'favorable' global credit conditions

S&P Global Ratings said July 5 that rising trade tensions led by the U.S.-China trade spat have ramped up risks in the current broadly favorable global credit environment.

U.S. President Donald Trump's administration has dragged the U.S. and China "halfway to an all-out trade war" after it announced potential tariffs on another $200 billion of Chinese imports and with both countries set to impose 25% tariffs on $34 billion of imports from one another on July 6, said S&P Global's Chief Canadian Economist Robert Palombi.

Trump on July 5 warned that the U.S. may eventually impose tariffs on more than $500 billion worth of Chinese goods.

"The direct effects of the tariffs placed so far won't materially change the U.S. macroeconomic backdrop or the prospects for overall corporate credit health in the country," said Palombi. "However, the escalation of trade tensions between the two biggest economies of the world could have broader real-world ramifications and sow the seeds of a noteworthy global growth slowdown."

In its report, "Global Trade Tensions Threaten Favorable Conditions Across Regions," S&P identified trade and investment interruption as one of the top global risks. Other top global risks were asset price volatility and liquidity reversal, debt build-up, the China debt overhang, populism and anti-globalization sentiment, and cybersecurity threats.

"The growing list of products targeted in tit-for-tat retaliatory tariffs -- some produced by multinationals through integrated supply chains -- will expand the share of global GDP exposed to trade and investment disruptions," warned S&P.

Notwithstanding these trade risks, S&P said credit conditions remain generally favorable across the Asia-Pacific region, buoyed by the global economic environment and still-favorable financing conditions.

Global trade tensions pose the highest risk for Europe, given the imposition of U.S. tariffs on the EU and the retaliation in kind from the affected countries.

"If the dispute escalates beyond tariffs on goods, the systemic implications for the global economy could become quite severe," S&P said.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here and here.