On Monday, S&P Global upheld its “AA+” credit rating for the US, stating that revenue from President Trump’s tariffs will counterbalance the fiscal impact of his extensive tax cuts and spending legislation.
Trump enacted the “One Big Beautiful Bill Act” into law in July after it was approved by the Republican-led Congress. This legislation not only introduced new tax reductions but also made Trump’s 2017 tax cuts permanent. “With the increase in effective tariff rates, we anticipate significant tariff revenue will generally counterbalance weaker fiscal outcomes that may arise from the recent fiscal legislation, which includes both tax cuts and spending increases,” S&P stated.
“Currently, it seems that substantial tariff revenue could potentially offset the deficit-increasing aspects of the recent budget legislation.” In July, the U.S. saw a $21 billion rise in customs duty collections due to Trump’s tariffs, yet the government budget deficit still expanded by nearly 20% to $291 billion that month. Public debt interest also grew, reaching $1.013 trillion in the first ten months of the fiscal year, marking a 6% increase, or $57 billion, from the previous year, attributed to slightly higher interest rates and increased debt levels.
Since January, when he resumed power, Trump has initiated a global trade war, imposing a series of tariffs targeting specific products and countries. The Republican president has set a baseline 10% tariff on all U.S. imports, along with additional duties on certain items and trading partners.
IMPACT OF TARIFFS
S&P, which was the first ratings agency to downgrade the U.S. government rating in 2011, stated that the U.S. rating outlook remains stable.
The agency expects the Federal Reserve, criticized by Trump this year for not lowering interest rates, “to address the challenges of reducing domestic inflation and dealing with financial market vulnerabilities.”
It forecasts the general government deficit to average 6.0% of GDP between 2025-2028, decreasing from 7.5% in 2024 and an average 9.8% of GDP from 2020-2023.
S&P noted it might lower the rating in the next two to three years if already high deficits rise further.
“Ratings could also face pressure if political developments undermine the strength of American institutions and the effectiveness of long-term policymaking or the Federal Reserve’s independence,” it indicated.
However, S&P mentioned it could upgrade the U.S. rating if there is sustained economic growth and adjustments to the U.S. fiscal profile that reduce recent debt burden increases.
The market showed no reaction on Tuesday to SP’s credit rating affirmation following Moody’s downgrade of the U.S. sovereign credit in May, which reduced the triple-A U.S. rating by one notch due to rising debt levels.
The U.S. national debt surpassed a record $37 trillion last week.
James Ragan, co-chief investment officer and director of investment management research at D.A. Davidson, remarked that the SP rating affirmation acknowledged the significant tariff revenue generated so far.
“It’s beneficial revenue coming in, but it also poses an economic drag, so the future impact remains uncertain,” he commented.
