Key points
- S&P Global Ratings maintains its AA+ rating for the US, citing tariff revenues offsetting tax cut impacts.
- Tariff revenue reached a record $28 billion in July, helping to mitigate the fiscal impact of recent legislation.
- The stable outlook reflects expectations of a consistent, though high, general government deficit over the next several years.
- Economists debate the long-term sustainability of tariff revenue given the administration’s “Buy American” initiatives.
S&P Global Ratings has affirmed the US’s AA+ credit rating, attributing its decision to the offsetting effect of tariff revenues against the fiscal strain caused by recent tax cuts. Despite market volatility and criticism from economists regarding the ongoing trade war, S&P’s assessment remains unchanged since 2011.
The agency expects substantial tariff revenue to counterbalance the weaker fiscal outcomes resulting from the recent tax and spending bill, maintaining a stable outlook for the long-term rating. July’s record tariff revenue of $28 billion underscores this expectation.
This positive assessment partially validates President Trump’s claim that tariffs are bolstering the nation’s fiscal position. However, the agency’s report acknowledges the complexities of the situation.
While S&P projects the general government debt will surpass 100% of GDP within three years, it anticipates an average deficit of 6% from 2025 to 2028, a decrease from last year’s 7.5%. This projection, however, hinges on continued tariff revenue generation.
The long-term viability of this revenue stream is a subject of ongoing debate. Economists highlight a potential contradiction between the administration’s reliance on tariff revenue and its simultaneous push for domestic production and consumption (“Buy American” initiative). This policy could potentially reduce reliance on imported goods, thus limiting future tariff collections.
The US Treasury Secretary’s optimistic forecast of tariff revenues exceeding 1% of GDP in 2025 contrasts with the Congressional Budget Office’s projection of a $3.4 trillion deficit increase over the next decade.
The market’s immediate response to the S&P report was relatively subdued. While US bond yields showed a slight dip, market participants expressed a more reserved response.
The focus shifted towards the upcoming Jackson Hole symposium and Federal Reserve Chair Jerome Powell’s speech, as investors anticipate further signals about interest rate adjustments and their implications for the bond market.
Several analysts noted that the rating agency’s decision holds symbolic significance rather than indicating a substantial shift in the US fiscal health.
