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China trade tensions could mean pain for emerging markets — Fitch

china trade tensions could mean pain for emerging markets fitch 816x445 - China trade tensions could mean pain for emerging markets — Fitch
Shanghai port China 050819 - China trade tensions could mean pain for emerging markets — Fitch
REUTERS

US President Donald J. Trump’s plan to increase tariffs on Chinese imports could lead to risk-off sentiment in emerging markets, according to Fitch Solutions.

Mr. Trump threatened to impose 25% tariffs instead of the current 10% on $200 billion worth of goods from China. Fitch Solutions noted that the possible cancellation by China of the trade discussions between the two countries may lead to strengthening of Mr. Trump’s resolve to pursue the tariff hike.

“Such a move could result in another round of tit-for-tat imposition of tariffs between the US and China and bring about another bout of risk-off sentiment which would hit emerging markets as happened in 2018,” Fitch said in its analysis.

A risk-off stance by investors means they will avoid risky assets, such as emerging-market securities, in favor of more reliable instruments.

Fitch sees four possible situations that may arise from the ongoing trade tensions.

It said the most positive scenario would be that the presence of China’s delegation in US to address concerns on technology transfer raised by US Trade Representative Robert Lighthizer, which could persuade Mr. Trump to relent on increasing tariffs.

Another positive scenario is that China’s delegation led by Vice Premier Liu He cancels the visit, giving the upper hand to less hawkish members of the US trade team, which, combined with the pressure of falling stock markets, could persuade Mr. Trump to not jeopardize talks with China.

A negative scenario is the cancellation of the discussions by China’s delegation likely leading the US to impose the 25% tariff. The most negative possible outcome is that US hawks would gain leverage and convince the rest of the government that China is acting in bad faith.

Asked how could this impact the Philippines, Fitch said in an e-mail, “Our view is that a slower pace of economic growth and money supply growth will ease domestic inflationary pressures.

The Philippine Statistics Authority (PSA) said that inflation slowed to a 16-month low of 3% in April, resulting in calls from economists to the Bangko Sentral ng Pilipinas (BSP) to loosen its monetary policy.

The BSP continuously reiterates its stance that it would take a data-driven decision, and would still look at other upside and downside risks as it comes with a policy move in its meeting on May 9. — Reicelene Joy N. Ignacio

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