Moody's Investors Service expects the US-China trade dispute to continue to limit investments, prolong tariff restrictions and elevate geopolitical tensions. Significant sector and regional impacts are likely, including unintended consequences on domestic supply chains.
"Industries that will use more expensive imported or domestically produced inputs will be hurt," said Elena Duggar, chair of Moody's Macroeconomic Board.
"Moving production chains will be costly and rising uncertainty will affect investment. The disruption will be higher in Asia than elsewhere given the region's integration in global supply chains."
The US tariffs on US$200bn of Chinese imports will be credit negative for Chinese commodity-related sectors and component manufacturing.
The tariffs will also have unintended consequences for US companies. The tariffs are credit negative for US retail and wholesale distributors of furniture, home goods, electronics, hardware and appliances that source finished goods from China destined for both US consumers and businesses.
Further, as about half of imports targeted by US tariffs represent intermediate inputs, the tariffs are also negative for a number of US sectors, including construction, transportation, telecommunications, and machinery manufacturing.
US export and investment controls on Chinese companies may disrupt certain US technology industries. Limiting Chinese direct investment in the US technology sector and a potential retaliatory response might dampen investment, financing conditions and growth potential of affected sectors and companies, including for semiconductors.
US and advanced economies trade flows have declined over the last few months, however it is not yet clear how much of the decline in trade flows is due to the trade tariffs. The US-China trade dispute could also contribute to higher commodity prices, especially for metals in which China represents a large share of the global market.