Moody's says that the tariffs just announced by the US on US$50 billion of Chinese goods, and the likelihood of Chinese retaliation, present a challenge to the global trade system — particularly given mounting US trade tensions with other partners. Moody's says that, in addition to their direct impact on trade, continued tit for tat tariffs may prompt volatility in financial markets. If they weaken consumer sentiment and moderate corporate investment in the US and elsewhere, a second impact of tariff increases would be to dampen robust global growth.

"The US tariffs on China are restricted to a relatively small range of high-tech products, and we don't expect them to meaningfully impact US inflation," notes the report. "However, individual US sectors ranging from agriculture to aerospace are vulnerable to retaliation by China. Thus the growth and inflation impact on the US economy will depend in large part on China's response, as well as the impact trade tensions have on global growth."

The biggest negative impact of Chinese tariffs, based on the list of 106 US products originally published on 4 April 2018, would be on the US agriculture sector, particularly soybean producers and processors. The tariffs would also be modestly negative for US chemicals producers. The impact on the US aircraft industry and auto industry would be only modest. Moody's suggests that the direct credit impact on all of these sectors would be mitigated because: 1) China's published product list appears to exclude the largest and most specialized US export goods within each product class; and 2) many of the companies that would potentially be affected produce out of their China facilities or have wide multinational networks that would allow them to reroute trade flows to mitigate the impact of tariffs. Yet, likely retaliation by China could create an indirect impact for sectors through financial market and business investment channels.