In general, the threatened tariffs and investment restrictions on China won’t likely cause deep pain to the Chinese economy, nor will they have a material impact on corporate borrowers in either country, it said in a press release on Monday.

S&P believes China’s response will be the key determinant on what happens next.

So far China’s response has been relatively measured, indicating potential tariffs on about $3 billion of US imports. But will China take additional retaliatory action?

“More aggressive moves could escalate into a full-blown trade war between the world’s two largest economies – with spill-over effects on global business confidence, investment, and growth,” said managing director Terry Chan.

“We asked our analysts to assume significant tariffs on specific Chinese import items to determine the impact associated with a potential downside scenario.”

Preliminary analysis shows that the overall impact on Chinese corporations and banks will be contained because the US represents only about 15 per cent of China’s exports, and China’s domestic activity now drives its economic growth rather than exports.

The $50 billion-$60 billion targeted by potential tariffs could affect up to 12 per cent of Chinese imports to the US. The trade dispute appears to be about technology and intellectual property, so products subject to the tariffs could include computers and cell phones.

However, it’s unclear whether the tariffs will focus on just one or two product categories or be more widespread.

“The near-term effects on corporate credit will likely be muted – barring an immediate escalation of retaliatory measures – but there will still be some impact for certain sectors, depending on their reliance on the Chinese market,” said managing director of corporate ratings David Tesher.

“However, our base case for limited ratings impact doesn’t factor in a Sino-US trade war. China has so far flagged that it may impose tariffs on 128 US product imports, including pork, recyclable aluminium, fruit and nuts, wine, and steel pipes.

“However, these products represent a relatively modest portion of trade from the US. If China’s response is more retaliatory, we would re-analyse the impact on industry sectors in both countries.”