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Fitch: US Tariffs Have Mixed Fiscal Impact, Won't Solve Underlying Challenges
Recommend 8 Positive 9 Negative 8 |
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The US tariff policy announced on 2 April raised the US Effective Tariff Rate (ETR) to about 25%, a significant increase compared with the already sharp rise to 18% assumed in Fitch's Global Economic Outlook for March, Fitch said. It remains to be seen whether product-specific exemptions, mostly covering pharmaceuticals and semiconductors, are maintained, and if retaliatory measures see trade tensions escalate further. A higher ETR implies a bigger revenue boost, all else equal. However, Fitch believed that the tariffs significantly raise US recession risks and constrain the Fed's ability to lower interest rates further given the expected shock to prices. A sharper economic slowdown would significantly weigh on non-tariff revenues and increase spending. These effects would lag the immediate revenue boost from tariffs, but Fitch thought they will be evident by 2026, along with negative spillovers from financial market volatility. The still-high deficits would leave Fitch's general government (GG) debt/GDP projections little changed, with the ratio approaching 120%, more than double the 'AA' category median. Rising GG debt remains among the key sensitivities of the US 'AA+'/ Stable sovereign rating. AAStocks Financial News |
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