AETRs on US imports to rise to 20-25% from 2.3% in 2024: S&P Global

Its March forecast assumed AETR of little above 10 per cent.

A preliminary assessment by the rating agency revealed the country-specific tariffs announced on April 2 were equivalent to an AETR (an import-weighted tariff rate) of approximately 21 per cent.

For China, the new additional tariffs on top of earlier tariffs take the overall tariffs to over 60 per cent.

The share of import content in US consumer spending would limit the new tariffs' impact on US consumer prices, but it would still be substantial in the near term, S&P Global Ratings initial assessment shows. 

The impact on US inflation in the near term will be significant, likely averaging closer to 4 per cent by fourth quarter compared with 3 per cent in the rating agency’s March baseline forecast.

Given that the 11-per cent share of consumer spending in the United States is represented by imported goods, the additional import cost would add 0.7-1 per cent to the consumer price index level from its earlier forecast, assuming the 50-75 per cent pass-through to consumers.

Assuming there are no major second-round effects, US inflation numbers should be headed back to the 2-per cent target by mid-2026.

The impact on US gross domestic product depends on retaliation by trading partners and how the tariff revenues get used, the rating agency observed.  

S&P Global Ratings does not see a recession as defined by the National Bureau of Economic Research in the next 12 months, but it acknowledges that the subjective probability of a recession within that time period has now likely moved up to 30-35 per cent from 25 per cent in March.

Large economies like the eurozone and China are likely to see smaller adjustments to their growth rates, bounded at around one-fourth percentage point per year. Europe will still see upside from higher infrastructure and defense spending from 2026.

More open economies that depend on trade for growth are likely to see larger adjustments to their growth rates, particularly if they trade heavily with the United States.

Finally, the rating agency expects US trading partners to respond to the latest round of tariffs, which will be targeted at perceived vulnerable US industries (and political districts) rather than broad-based.

It also expects, in some cases, non-tariff measures as well as measures affecting services as well as goods flows. These potential countermeasures would put further downside pressures on growth.

ALCHEMPro News Desk (DS)