US trade uncertainties to hurt business confidence, growth in Asia: Moody's

The tariff pause does not reverse the trend of de-globalisation but increases trade policy uncertainty, as the Trump admin's goal of reshoring manufacturing supply chains to the US remains unchanged

Uncertainties around the US trade policy will undermine business confidence and consumer sentiment, adversely impacting growth in Asian nations, including India, Moody's Ratings said on Sunday.

US President Donald Trump has postponed by three months the imposition of reciprocal tariffs, with the exception of China on whom a 125 per cent tariff has been slapped. However, a 10 per cent additional duty on exports to the US will continue. 

"An escalation of US-Sino tensions and the spillover effects from a slowdown in China pose significant downside risks to t  he (Asian) region's growth prospects. Economies with large domestic markets, such as India, may benefit from companies seeking access to these markets but any major shift in investment flows would occur over several years," Moody's Ratings Senior Vice President, Credit Strategy & Guidance, Nicky Dang told PTI.

Moody's Analytics, another Moody's firm, had last week cut India's growth forecast for the 2025 calendar year to 6.1 per cent in 2025 from 6.4 per cent projected in February.

Dang said the tariff pause mitigates the negative impact of the additional tariffs on the region's trade and growth. However, economies in the region still face considerable downside risk due to an additional 10 per cent universal tariffs and their high direct and indirect exposures to the US.

"The uncertainty surrounding US trade policies will likely continue to undermine business confidence and consumer sentiment in the region, potentially lowering domestic demand and growth prospects. Furthermore, the additional tariffs on Chinese exports, which were not included in the pause, exert further pressure on China's growth," she said.

The tariff pause does not reverse the trend of de-globalisation but increases trade policy uncertainty, as the Trump administration's goal of reshoring manufacturing supply chains to the US remains unchanged, Dang said.

Recent developments suggest changes in the global trade system, which had previously been trust and rule-based, have begun, and the broader impact on the global economy could be significant.

Exporters and trade experts in India have been saying that the 90-day period provides a crucial window for pushing the talks on the proposed bilateral trade agreement between India and the US.

The two countries are negotiating a bilateral trade agreement (BTA) with an aim to more than double their trade to USD 500 billion by 2023 from about USD 191 billion at present. They are aiming to conclude the first phase by the fall (September-October) this year.

"The 90-day moratorium provides some space for all governments to negotiate for more favourable terms... Higher overall tariffs still place some inflationary pressure on the US economy. In the meantime, policy uncertainties are likely to continue weakening business and consumer sentiment and reducing domestic demand, posing downside risks to growth," Dang added.