S&P Global Ratings said higher tariffs are a top concern for many U.S. corporate borrowers we rate, and would likely result in rising input prices at a time when companies are grappling with already-elevated costs and a more difficult passthrough environment. S&P Global Ratings said in “What Looming Tariffs Could Mean For U.S. Corporates,” published Feb. 27.
President Donald Trump has started his second term with a slew of executive orders, with many actions focusing on trade and tariffs. As it stands, the 10 percent additional tariffs on imports from China, and China’s counter measures, have come into force. The 25 percent tariffs on Mexico and Canada imports, and the 25 percent tariffs on steel and aluminum products are due to become effective on March 4 and March 12, respectively. President Trump also suggested he would double the recent tariffs levied on China starting March 4.
Significant uncertainties also remain for other measures—including reciprocal tariffs, and additional tariffs on specific products, as well as the possibility of 25 percent tariffs on imports from the EU—that the president has suggested.
“We believe increasingly protectionist trade policies, including materially higher tariffs, would likely result in inflationary pressures through higher prices for consumers and rising input costs for U.S. sectors exposed to imports and cross-border supply chains at a time when they are grappling with already-elevated costs and a more difficult passthrough environment,” said David Tesher, S&P Global Ratings’ head of North America Credit Research. “Many of the trading partners likely subject to higher U.S. tariffs account for large shares of U.S. product imports.”
Any retaliatory actions could also hurt those relying on key components and foreign markets. All this could put more margin pressure on corporates, weighing on their credit quality.
“Focusing on the tariffs announced by the Trump administration so far on China, Mexico, Canada, and steel and aluminum, we think autos, metals and mining, tech, oil and gas, capital goods, chemicals, consumer products and retail, pharma and health care, and utilities and power are key U.S. sectors to watch,” said Chiza Vitta, managing director of Corporate and Infrastructure Ratings.
The prospect of tariff-fueled inflation is throwing a wrench into the Federal Reserve’s monetary-policy easing, and any related economic disruption could dampen market sentiment. Against this backdrop, investors could soon demand higher risk premiums and as a result, the cost of debt service and/or refinancing may be overly burdensome for some borrowers—especially those at the lower end of the ratings ladder.
This report does not constitute a rating action.
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