Asia-Pacific credit outlook worsens amid deepening US-China tensions: S&P

Asia-Pacific credit conditions are set to worsen further as escalating tensions between China and the United States continue to strain regional economies, according to a report published by S&P Global Ratings on Monday.

In its special update, titled “Credit Conditions Asia-Pacific: U.S.-China Ties In Uncharted Territory”, the ratings agency said the region faces a firmly negative credit outlook due to trade disruptions, tighter financial conditions, and persistent market volatility.

"The trade tussle between China and the U.S. marks a significant escalation in ties between the two countries, and is hitting growth and confidence in Asia-Pacific," said Eunice Tan, head of Asia-Pacific credit research at S&P. "With market volatility persisting, tighter financing conditions will compound liquidity strains. Taken together, these developments are negative for Asia-Pacific credit."

While the Trump administration’s recent 90-day pause on reciprocal tariffs and a softened stance on electronics exports offer some breathing room, S&P cautioned that the region is “not out of the woods”.

“Strained U.S.-China relations will affect Asia-Pacific economies, given the region’s integrated trade ties with both countries,” Tan added. “A sharper deterioration in relations will further strain confidence and severely disrupt supply chains and global trade flows.”

The report highlighted several key risks:

• Trade disruption: Ongoing and potential new U.S. tariffs are expected to slow global trade and damage business confidence. Economies heavily reliant on manufacturing and exports — particularly to China and the U.S. — are likely to be hit hardest.
• China slowdown: Persistent tariffs on Chinese exports are reducing the country’s competitiveness and deterring new investment. With real estate woes already weighing on the economy, S&P expects Chinese exporters to cut prices to offload excess capacity, further squeezing margins for domestic manufacturers across the region.
• Rising contagion risk: Uncertainty around U.S. trade policy is fueling risk aversion, prompting investors to demand higher premiums and become more selective. Tighter access to financing for riskier assets and the potential for sharp asset repricing could worsen market volatility and restrict capital raising.

S&P warned that should the paused tariffs announced on April 2 resume — particularly for economies other than China — the geopolitical and economic fallout could be severe.