Tighter US trade policies could reshape APAC economies, offer opportunities to India: Moody’s Ratings

New Delhi: As the United States tightens its trade policies and increases its scrutiny of foreign direct investment in strategic sectors, the Asia-Pacific (APAC) region could face significant economic repercussions, Moody's Ratings said on Friday. New restrictions on trade with China, coupled with tariffs, could shift the dynamics of global trade, potentially benefiting countries such as India and those in the ASEAN bloc, the rating agency added.

However, the ripple effects of a slowdown in China's economy could present a mixed bag of opportunities and risks for economies closely tied to China’s, according to two reports by Moody's, both titled 'US Elections - Asia Pacific'.

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As things stand, many developed economies including the US have drawn up strategies to shift investments and manufacturing from China to other countries to reduce their reliance on the world’s second-largest economy.

According to Bloomberg, presidential candidate Donald Trump has touted a 20% baseline tariff on all imports – and as much as 60% for those from China – if voted into power.

Heightened credit risk 

Moody's Ratings said restrictive US trade measures could adversely affect credit conditions across various sectors in the APAC region, and that Chinese industries heavily dependent on US demand such as electronics, electrical equipment and chemicals may face significant challenges.

It added that Japanese and Korean automakers are expected to face heightened credit risk because of the increase in protectionist policies, though sectors in India and parts of Southeast Asia, including electronics and textiles, may see new growth opportunities as US firms seek alternatives.

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According to Moody's Ratings's latest quantitative analysis, the development of US trade policies after the election in November could reduce gross domestic product (GDP) across Asia-Pacific economies.

"Relations with China will remain a top US foreign policy agenda. US-China polarisation risks exacerbating geopolitical divisions in APAC, particularly in the Taiwan Strait, Korean Peninsula, and South China Sea. Such divisions increase the risk of disruption to the supply of semiconductors and a further increase in defence spending by APAC countries directly embroiled in conflict," Moody's Ratings said

"Moody's evaluated potential economic losses—defined as an economy generating less than it would have without stricter trade measures—through quantitative analysis of two scenarios: increased tariffs and tighter scrutiny of China-related trade and foreign direct investment in key strategic sectors," it added.

Also read: What America’s presidential election means for world trade