Tariff hikes inflict political pain, not economic

New U.S. tariff increases on certain Chinese imports won’t have much economic impact — their real significance is geopolitical, Moody’s Investors Service said in a report released Monday.

Last week, the U.S. government announced higher tariffs on imports from China in certain sectors, such as the auto industry, semiconductors, healthcare and manufacturing.

According to the rating agency, the impact of these new tariffs on the U.S. economy will be limited, as the affected goods represent less than 0.1% of GDP and just 0.5% of total imports. They are also much more limited than the previous trade action by the U.S. against China in 2018–2019, which affected 9% of total U.S. imports.

However, the tariffs are significant from a geopolitical point of view, Moody’s said.

“Indeed, the tariffs are yet another indication that U.S. trade policy will remain restrictive, pointing to continued fragmentation in global trade and related geopolitical risk,” it said.

In particular, the latest tariffs, which target strategic products, “intensify the U.S.-China rivalry over clean energy technologies and supply chains,” the report said.

“Global industrial policies are driving green tech investments and innovation, as well as carbon transition risks for exposed sectors. Nevertheless, ongoing geopolitical risks and trade barriers are complicating investment strategies and supply chain management across sectors, particularly for auto manufacturing and power industries,” it added.

Additionally, retaliation by China could escalate the trade action, increasing the negative economic effects, the report noted.

“Exposure will be greatest for companies with single-source Chinese suppliers until they diversify or shift to a domestic provider, especially for U.S. automakers that rely on Chinese battery imports,” Moody’s said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.