US more wary of trade war impact in run-up to 2020 elections, says S&P

July 26, 2019

SINGAPORE -- The pressure on Asia-Pacific sovereign credit metrics should ease in the next few months of 2019, compared with the first half of the year, according to S&P Global Ratings.

"In our view, U.S.-China tension will not dissipate any time soon, although the likelihood of an abrupt and sharp increase in tariffs has receded for now" S&P says.

Recent statements out of the U.S. suggested that potential tariff hikes on currently unaffected Chinese imports would not be set at 25% immediately."

"Together with the resumption of trade negotiations, these statements could reflect a greater wariness on the part of the U.S. about creating undue economic uncertainties ahead of the 2020 Presidential elections.

"This development makes it less likely that China would see an abrupt economic slowdown. In turn, the possibility of another bout of credit support for growth that weakens financial stability in China is also reduced."

S&P says increasing expectations of easier monetary policy in key developed economies have also reduced the risks of capital outflows from emerging Asian markets.

"This turnaround from expectations of monetary tightening just last year has bought economies dependent on foreign financing some breathing space. "

Referring to economies dependent on foreign financing, S&P Global Ratings credit analyst, Kim Eng Tan, said international investors were less likely to pull out abruptly as the relative attractiveness of their debts diminished with declining interest rates in the developed markets. (ATI).