S&P: "US Tariff Revenue Offsets Fiscal Deterioration, Maintains Long-Term Credit Rating"

Fiscal Impact from Tax Cuts Temporarily Offset by Tariff Revenue

"No Substantial Change in the United States' Long-term Fiscal Soundness"

S&P Global Ratings, an American credit rating agency, stated that the US's tariff revenue will help mitigate fiscal shocks and maintained the country's long-term credit rating at AA+. The outlook for the long-term credit rating also remains 'stable.'

According to Bloomberg on the 19th (local time), S&P Global Ratings expects that the US’s tariff revenue will offset the fiscal blow resulting from the Trump administration’s tax and spending bill (BBBA), which passed in early July. Accordingly, the long-term credit rating for the US remains at AA+, and the long-term rating outlook is maintained as 'stable.'

Analysts at this ratings agency reported, "With the effective US tariff rate rising, tariff revenue is expected to offset the fiscal hit caused by the recent fiscal bill."

S&P stated that the 'stable' outlook signals that, even though the fiscal deficit will not significantly improve, it also is not expected to worsen continuously over the next few years. S&P projected that, over the next three years, the net general government debt will exceed 100% of GDP, and the general government deficit will average 6% from 2025 to 2028, down from 7.5% last year.

On this day in the Asian market, the yield on the 30-year US Treasury bond held steady around 4.94%, and the benchmark 10-year Treasury yield rose slightly to 4.34%. This suggests the S&P report had minimal impact.

Maintaining the long-term credit outlook is meaningful for US bond market investors. Concerns about tariffs, the Trump administration’s tax cut bill, and worries over the Federal Reserve’s independence have unsettled confidence in US Treasuries, with the 30-year yield at one point exceeding 5% in May.

Whether tariffs will boost US revenue in the long run remains a debated issue among economists.

Tariff revenue is dependent on trade, but as Trump encourages production to return to the US and promotes the consumption of American-made products, long-term trade could decrease, which could also reduce tariff revenue.

US tariff revenue reached a record high of $28 billion in July. Treasury Secretary Scott Besant estimated that total annual tariff revenue would far exceed 1% of GDP, surpassing $30 billion. However, the bipartisan Congressional Budget Office (CBO) projects a deficit of $3.4 trillion (₩4,726 trillion) over the next ten years due to the recently passed budget.

Homin Lee, chief macro strategist at Lombard Odier in Singapore, commented, "This is not a significant change in the highly complicated fiscal soundness of the US, but rather a minor shift at the top of the rating system."

The US lost the highest rating from the three major rating agencies after Moody’s downgraded the US sovereign credit rating from Aaa to Aa1 last May. Moody's pointed out that the Trump administration and Congress are pushing forward with tax cut measures expected to worsen the fiscal deficit, with no signs of easing in sight. Fitch and S&P had already downgraded the country’s sovereign credit rating from AAA earlier as well.

Fiona Lim, chief currency strategist at Malayan Banking, stated that this recent ratings adjustment could have a positive effect on the dollar. However, she added that the biggest driver for dollar strength will be found in the Federal Reserve Board’s meeting minutes and Jerome Powell’s speech at the Jackson Hole event on Friday.

By Jung-Ah Kim, Contributing Reporter, kja@hankyung.com