The report by Moody’s stated that rising geopolitical tensions are starting to pose the primary threat to global credit stability. The report underlined the rapid increase in economic and political friction between the United States and China as the main cause for concern.
Relations between the two superpowers have soured since 2019. Then-President Donald Trump slapped tariffs and trade barriers on China during his first term, a situation that stretched the trade between the two nations and which has not changed to date. New tariffs proposed by President-elect Trump could cause even more global trade disruptions depending on how they are used.
Another influence on tensions has been the rising trade surplus of China since the COVID-19 pandemic. It is an imbalance in trade with the U.S. since China exports while it imports less. The situation could become worse, meaning that the U.S. will continue to adopt retaliatory measures, which include tariffs and new trade restrictions.
Moody’s also expects governments to enforce stricter investment restrictions and more onerous “rules of origin” that stipulate the origin of merchandise. Actions in this line may lead to further entanglements of international trade. According to the report, countries relying heavily on trade with China, especially those from Latin America. And the Asia-Pacific region, would likely be the first affected. Both regions nowadays have become wheels of global trade, acting as middlemen between major economies. But here is the catch: the tight economic ties with China could place them at greater risk from new restrictions.
This is coupled with efforts by governments. And businesses around the world to build more resilient supply chains in response to such emerging challenges. Many are diversifying their trade partners as a way of reducing dependence on any one country. However, the unpredictability of geopolitical developments means countries and businesses will have to continue adapting to new shocks.
Moody’s warns of the possibility of intense disruption of global credit. Due to geopolitical tensions, especially between the United States and China. Further trade restrictions and rising political fragility might render economic certainty and stability diffused in most parts of the world.
ANI
