Global credit conditions are facing increased risks due to rising geopolitical tensions, according to a report by Moody’s. The report specifically points to the escalating economic and political friction between the United States and China as a major concern for global credit stability. President Trump’s proposed tariffs are highlighted as a potential disruptor to global trade, with the report noting that the implementation of these tariffs could have far-reaching consequences depending on their scope and application.
The report highlights the deteriorating economic relations between the U.S. and China since President Trump imposed tariffs and trade barriers against China during his first term in 2019. The strain in relations has been further exacerbated by China’s expanding trade surplus since the COVID-19 pandemic, which could lead to additional retaliatory measures from the U.S. to balance trade between the two nations. The risk of additional trade restrictions is seen as a result of the growing trade surplus and resulting imbalances between the U.S. and China.
In addition to tariffs, the report anticipates stricter investment restrictions and tougher rules of origin policies, which define the source of goods, further complicating international trade. This could have ripple effects in regions and industries heavily reliant on trade with China, particularly in Latin America and the Asia-Pacific countries. These regions, which have served as intermediaries in global trade, could face vulnerabilities due to their strong ties to China.
Governments and businesses globally are already taking measures to build resilience to the uncertainty caused by geopolitical tensions. One such measure is diversifying supply chains to reduce reliance on specific countries. However, the unpredictable nature of geopolitical developments means that further shocks are likely, and both governments and businesses will need to adapt and respond accordingly. The report emphasizes the need for preparedness in the face of evolving global credit conditions.
