The risks of a global trade war have increased significantly as the Trump administration adopts a more aggressive US trade policy than previously anticipated. If proposed US tariffs are fully implemented, retaliatory measures are expected, potentially causing a substantial negative impact on global economic growth, with Mexico and Canada being the most vulnerable, according to Fitch Ratings.

A potential trade war poses the most immediate threat to global credit markets. However, US policy beyond trade remains a key area of focus. Many of the Trump administration’s early priorities align with Fitch’s 2024 US election analysis, emphasising immigration, deregulation, climate policy rollbacks, and tax cuts. The impact on various sectors and issuers is expected to vary significantly, Fitch Ratings said in a press release.

It expects the 2017 tax cuts to be extended, already factored into its economic and credit outlook. Further cuts could boost domestic demand and corporate cash flow, benefitting corporate credit but straining public finances.

The net effect of the policy agenda on US inflation remains a key uncertainty and points to persistent interest rate risk. The potential for a 5 to 6 per cent US 10-year treasury yield scenario has risen. This would most likely occur within the context of stronger economic growth but with higher interest rate risk.

Notably, these uncertainties come at a time of slowing US and Chinese growth and a faltering recovery in the eurozone, underscoring cyclical vulnerabilities, added the release.

Fibre2Fashion News Desk (SG)

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