THE global trade war kicking off between the United States and China will not trigger a spate of credit rating downgrades, Fitch’s top sovereign analyst said, but the U.S. dollar’s growing strength could.

The recent imposition of tariffs between the world’s two largest economies means a trade war has gone from “a risk to a reality,” Fitch’s head of government ratings James McCormack said.

It has changed the firm’s overall view of the world. Fitch had hoped the trade tension might blow over, but now believes it could wipe as much as 0.5 percentage points off U.S. economic growth and probably the same off Chinese growth too.

While that certainly isn’t healthy, the developments on their own however shouldn’t cause a mass wave of downgrades.

“I wouldn’t anticipate it to be honest on a trade war alone,” McCormack said.

“The United States is on the strong side of triple A,” he said, adding that U.S. debt as a proportion of its GDP would have to rise somewhere between 20-35 percent before Fitch’s in-house model started flashing downgrade warnings.

China’s A+ rating should also be able to handle it, McCormack said.

More broadly the bigger risk for emerging market ratings in particular is the ongoing rise of the U.S. dollar, McCormack said. (SD-Agencies)