On Monday, S&P Global affirmed its “AA+” credit rating for the US, stating that revenue from President Donald Trump’s tariffs will offset the fiscal impact of his extensive tax-cut and spending bill.
Trump signed the “One Big Beautiful Bill Act” into law in July after it was passed by the Republican-controlled Congress. The bill, which included new tax breaks, also made Trump’s 2017 tax cuts permanent. “Amid the rise in effective tariff rates, we expect meaningful tariff revenue to generally offset weaker fiscal outcomes that might otherwise be associated with the recent fiscal legislation, which contains both cuts and increases in tax and spending,” S&P stated.
“At this time, it appears that meaningful tariff revenue has the potential to offset the deficit-raising aspects of the recent budget legislation.” The US reported a $21 billion increase in customs duty collections from Trump’s tariffs in July, but the government budget deficit still grew by nearly 20% in the same month to $291 billion. Interest on the public debt also continued to rise, reaching $1.013 trillion in the first 10 months of the fiscal year, an increase of 6%, or $57 billion, over the prior-year period due to slightly higher interest rates and increased debt levels.
Since returning to power in January this year, Trump has initiated a global trade war with a series of tariffs targeting specific products and countries. The Republican president has imposed a baseline tariff of 10% on all imports to the US, along with additional duties on some items and trading partners.
IMPACT OF TARIFFS
S&P, which was the first ratings agency to cut the pristine US government rating in 2011, said the outlook on the US rating remains stable.
The ratings agency stated it expects the Federal Reserve, which Trump criticized this year for not cutting interest rates, “to navigate the challenges of lowering domestic inflation and addressing financial market vulnerabilities.”
It projected the country’s general government deficit to average 6.0% of GDP during the 2025-2028 period, down from 7.5% in 2024 and from an average 9.8% of GDP in 2020-2023.
S&P mentioned it could lower the rating over the next two to three years if already high deficits increase.
“The ratings could also come under pressure if political developments weigh on the strength of American institutions and the effectiveness of long-term policymaking or independence of the Federal Reserve,” it mentioned.
However, S&P said it could raise the US rating in the event of sustained economic growth and adjustments to the US fiscal profile that would reduce recent increases in the country’s debt burden.
There was no market reaction on Tuesday to S&P’s credit rating affirmation, which follows a US sovereign credit downgrade by Moody’s in May, when that ratings agency downgraded the triple-A US rating by one notch, citing rising debt levels.
The US national debt load surged above a record $37 trillion last week.
James Ragan, co-chief investment officer and director of investment management research at D.A. Davidson, said the S&P rating affirmation acknowledged the meaningful tariff revenue generated so far.
“That’s all good revenue coming in, but that’s also a drag on the economy, so I think we don’t know the impact of that going forward,” he explained.
