'Tit for tat trade measures by US, China may lead to mkt volatility'

The competing tariff proposals announced by the US and China will weigh on investor sentiment, and such "tit for tat" measures could lead to more financial market volatility in the coming months, global ratings agencies said today.

S&P Global Ratings in a statement said a greater threat is the dispute expanding beyond tariffs on goods.

"A breakdown in negotiations and policy missteps could spiral into a trade war, damaging global business and consumer confidence, investment prospects, and growth," it said.

Moody's Investors Service in its report said the rising uncertainty and political risk accompanying these "tit for tat measures" will likely have economic and financial impact beyond that which is transmitted through direct trade channels.

"A further escalation in trade tensions will weigh on investor sentiment and likely lead to more financial market volatility in the coming months. If the risk of escalation persists, it could also lead to reduced business investment over the medium term and lower production efficiency amid already low global productivity growth," Moody's said.

Earlier this week, the United States announced a proposed list of products imported from China that could be subject to additional tariffs of 25 per cent amounting to USD 50 billion.

In a retaliatory move, China vowed to impose measures of the "same strength" on a host of American products in response to the tariff hike.

Terming China's move "unfair", the US yesterday said it would consider levying tariffs on an additional USD 100 billion in Chinese goods.

S&P said the US announcement that it may impose tariffs on another USD 100 billion of unspecified Chinese imports further raises the stakes in the China-US trade dispute.

"This action draws the countries even nearer to an all-out trade war," S&P Global Ratings said.

Moody's said it believes that the US and China will avoid a dramatic increase in trade restrictions, given the detrimental impact such an increase would have on both economies.

Moody's said it does not expect these proposals to take full effect.

"However, if implemented, these measures would signal a serious deterioration in the US-China trade relationship. In such a scenario, we would expect a material macroeconomic impact. Reciprocal tariffs would raise import prices and thus lower household real incomes, reduce trade flows, increase risk aversion and weaken wealth effects due to lower asset prices," Moody's said.