China’s tariff to hurt companies that depend on exportation

Moody’s Investors Service said China’s new retaliatory tariffs on US exports, which were announced on Sunday, 1 April 2018, will hurt companies dependent on exports.

The tariffs China announced on 128 categories of imports affect a variety of sectors ranging from foodstuff to industrial goods.

The direct macroeconomic impact of these tariffs on the United States is limited if it is measured in terms of dollars of US exports affected relative to total US exports.

However, for firms, sectors and localities that depend on revenues from exports of items targeted by the tariffs, the impact will be more significant.

“As we have noted before, the importance of tariff announcements by both the US and China lies in what they may portend for overall bilateral trade and investment relations between the two countries,” said Moody’s.

Moreover, the US and China are the world’s largest economies and they play a large role in global trade, production supply chains and investment.

Therefore, their policy actions would likely have global macroeconomic and credit implications.

Although the macroeconomic impact of tariffs may appear limited they will have broader microeconomic impact.

“When measured by the dollar value of goods affected, if such tariffs are seen by global market participants as signaling an escalation in trade tensions, they will eventually have a broader macroeconomic impact by dampening market sentiment as well as business investment decisions,” Moody’s said.

Financial markets have demonstrated their sensitivity to trade announcements over the past several weeks.

However, whether actual domestic or cross-border business investment in particular sectors slow down as a result of rising trade tensions is yet to be seen.