Geopolitical Crisis Identified as Major Threat to Global Credit Growth: Moody’s Report

A recent report from Moody’s has flagged growing geopolitical tensions as the primary threat to global credit stability. The report underscores the escalating friction between the United States and China, citing this economic and political conflict as a key factor affecting global credit conditions.

Trump’s Proposed Tariffs Could Further Disrupt Global Trade

The report specifically pointed to the potential impact of new tariffs proposed by then-President-elect Donald Trump, suggesting that these measures could disrupt global trade further depending on their implementation. Moody’s noted, “New tariffs proposed by President-elect Trump would be much more disruptive depending on how they are implemented.”

Moody’s highlighted the decline in US-China economic relations, which have worsened since 2019 when President Donald Trump imposed tariffs and trade barriers against China during his first term. The report states, “Economic relations between the US and China have deteriorated since President-elect Donald Trump raised tariffs and trade barriers against China during his first term in 2019.”

Adding to the geopolitical strain, the report noted that China’s increasing trade surplus since the COVID-19 pandemic could exacerbate trade tensions with the United States. The growing imbalance might prompt further retaliatory actions from the US aimed at addressing the trade deficit. “The risk of additional trade restrictions has risen as a result of China’s growing trade surplus and resulting imbalances with the US,” the report added.

Stricter Investment Restrictions and Tougher Trade Policies Expected

Beyond tariff measures, Moody’s expects stricter investment restrictions and tighter rules of origin, which define the source of goods, to further complicate international trade. The implementation of these policies is likely to create additional barriers, impacting industries and regions that are heavily reliant on trade with China.

The report identified Latin America and Asia-Pacific as regions particularly vulnerable to these rising trade restrictions. These areas often serve as intermediaries or “connector countries” in global trade networks, but their strong economic ties with China could expose them to significant risks if new restrictions are imposed.

According to Moody’s, businesses and governments worldwide are already attempting to mitigate the uncertainty brought on by geopolitical conflicts by diversifying their supply chains. However, the report cautions that the unpredictable nature of geopolitical developments will continue to trigger shocks, requiring ongoing adjustments from both businesses and policymakers.

Moody’s concludes that while efforts are being made to build resilience, the geopolitical landscape’s inherent unpredictability remains a substantial risk, casting a shadow over future global credit growth and stability.