US President Donald Trump’s sweeping tariffs have roiled markets, unnerved trade partners and provoked criticism from leading economists. But there is an upside: The levies will help the US maintain its fiscal health, according to S&P Global Ratings.
The credit rating company has affirmed its AA+ long-term rating for the US, in part because it thinks tariff revenues will reduce the fiscal hit of a recent tax and spending bill. It kept the outlook for the long-term rating stable.
The decision offers a glimmer of good news for Trump, who has pushed back against arguments that his historic program of tariffs will damage the US economy. Although the S&P analysts didn’t contradict that view, they stressed that as Trump embarks on a bold program of tax cuts and spending, tariffs will help soften the blow.
“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,” wrote analysts including Lisa Schineller in a note.
S&P’s views matter for investors in the world’s biggest bond market, which has been plagued by persistent questions over the fiscal deficit and debt sustainability. Yields on 30-year Treasuries jumped above 5% in May as tariff fears and Trump’s multi-trillion dollar tax bill roiled global markets.
See also: MSCI, Moody’s to launch independent risk assessments for private credit investments
Buy America
Whether tariffs will give the US a meaningful revenue boost is a subject of debate among economists, who point to an apparent contradiction at the heart of Trump’s approach: Tariff revenues rely on trade, but Trump has also attempted to pull production back to the US and encourage consumers to buy American-made products — moves that would undercut future levy receipts.
The White House didn’t immediately reply to an out of hours request for comment.
See also: Israel cut by Moody’s again as war takes economic toll
So far, the numbers are strong. Tariff revenue reached a fresh monthly record in July, with customs duties climbing to US$28 billion ($35.94 billion).
US Treasury Secretary Scott Bessent said tariff revenues for all of 2025 could be “well in excess of 1% of GDP”, revising his previous estimate of US$300 billion. But the bipartisan Congressional Budget Office estimates the recently passed budget bill will add US$3.4 trillion to the deficit over the next 10 years.
US 30-year yields were close to flat around 4.94% in Asia trading Tuesday, while those on benchmark 10-year yields edged higher to 4.34%. That pointed to a muted short-term impact from the S&P report, even if it adds an important voice as traders weigh up the impact of tariffs over the coming months.
“These are still small nuances close to the top of the credit ratings hierarchy and it doesn’t signal any material change in the US fiscal health, which is a complex issue,” said Homin Lee, senior macro strategist at Lombard Odier in Singapore.
The US lost its last top rating from the big three credit companies in May, when Moody’s Ratings lowered the country from Aaa to Aa1. It blamed successive administrations and Congress for swelling budget deficits that it said show little sign of abating. Fitch Ratings and S&P had previously downgraded the US from AAA.
S&P said the stable outlook indicates its expectation that while the fiscal deficit won’t meaningfully improve, it also won’t persistently deteriorate over the next several years. The agency expects net general government debt to surpass 100% of GDP over the next three years, but it thinks the general government deficit will average 6% from 2025 to 2028, down from 7.5% last year.
The rating affirmation could be a positive for the dollar after Trump’s tax and spending bill cast doubts on the sustainability of US debt, said Fiona Lim, a senior currency strategist at Maybank.
Still, the more lasting driver for the greenback will come from US Federal Reserve minutes, as well as Fed Chair Jerome Powell’s speech in Jackson Hole on Friday, she said.
Chart: Bloomberg
