**London**: Moody’s reports that US reciprocal tariffs risk worsening credit conditions, increasing corporate defaults, and slowing economic growth. The uncertain trade policy may reduce US growth by over one percentage point, while China’s export sector also faces significant challenges amid these tensions.
Moody’s Ratings has issued a report highlighting the potential negative impact of the United States’ reciprocal tariffs on credit conditions and the broader economy. According to the report, these tariff measures are expected to weaken credit conditions and increase the risk of defaults, particularly among low-rated and speculative-grade corporations.
The report emphasises that non-financial corporate sectors are particularly vulnerable due to their dependence on debt markets, with the potential for more pronounced effects on businesses that fall within lower credit rating categories. While risks to banks and sovereign states exist, these are primarily considered to be indirect, stemming from broader economic weakening.
Moody’s warns that the unpredictable nature of US trade policy will result in a deterioration of global credit conditions. This uncertainty is anticipated to slow economic growth, increasing the likelihood of a recession. The tariffs themselves are projected to significantly elevate costs for both consumers and businesses within the United States.
“The tariffs have shocked financial markets and are raising the risk of a global economic recession. Continued uncertainty will impede business planning, stall investment and hit consumer confidence,” Moody’s commented.
Although a temporary “pause” in the imposition of tariffs provides some relief by allowing businesses more time to adapt production and sourcing strategies, the absence of clear direction beyond this period is expected to hinder business planning and decelerate investment and economic expansion.
Moody’s also reported a sharp deterioration in credit conditions over the past month, forecasting higher default rates as businesses contend with increased operational costs, more expensive and limited funding options, and ongoing uncertainty. The rating agency estimates that these tariffs will reduce US economic growth by at least one percentage point while pushing prices higher for consumers and companies.
Beyond the United States, Moody’s has expressed concerns for China’s export sector and its wider economy, which face significant challenges due to both the escalating trade tensions with the US and a slowing global economic environment. Even if the current escalation moderates, the US-China relationship is expected to remain strained. This persistent tension could negatively affect business and consumer sentiment in China, undermining efforts by the Chinese government to stimulate consumption and foster growth in the private sector.
The comprehensive analysis by Moody’s Ratings underscores the broad and interlinked consequences of US tariff policies, not just domestically but also in the global economic landscape.
Source: Noah Wire Services
Subscribe to Industry Updates
