U.S. President Donald Trump's decision to delay tariffs on auto imports offers a relief for global markets but this trade de-escalation is seen as only temporary, Moody's said May 20.

Last week, the U.S. announced that it will wait another six months to decide whether to slap up to 25% tariffs on auto imports as it continued talks with its trade partners.

In Moody's assessment, the delay improves the prospects of new trade agreements and potential exemptions from auto tariffs, which reduces uncertainty.

However, the risk of a sudden breakdown in negotiations has increased, after trade tensions between the U.S. and China recently escalated. Furthermore, global financial markets continue to face heightened volatility.

Moody's said Mexico and Canada would likely be exempted from potential tariffs, ahead of the ratification of the U.S.-Mexico-Canada Agreement. The U.S. is actively engaged in trade talks with Japan, the European Union and South Korea.

The rating agency added that the delay would allow auto firms to optimize trade flows and prepare to mitigate the impact of potential tariffs.

Germany, South Korea and Japan could see exports shrinking by about 0.2 to 0.3 percentage points as a result of U.S. auto tariffs, the rating agency said.

Roughly $200 billion of U.S. auto and auto parts imports could be affected should Washington push ahead with implementing the tariffs, while retaliatory actions could affect another $300 billion of trade flows into the U.S, Moody's added.