BLOG — April 09, 2025
Credit Risk Scenario Analysis Series: US Tariffs Scenario
This article is written and published by S&P Global Market Intelligence, a division independent from S&P Global Ratings. Lowercase nomenclature is used to differentiate S&P Global Market Intelligence credit scores from the credit ratings issued by S&P Global Ratings.
The imposition of various tariffs by the United States on imported goods, coupled with retaliatory tariffs from its trade partners, is increasingly challenging the status quo of international trade. Companies must reassess their foreign supply chains and adapt to evolving customer behavior. In this context, a tool for credit risk assessment grounded in macroeconomic scenarios proves to be particularly valuable.
In the previous blog of the Credit Risk Scenario Analysis Series, we employed the RiskGauge Model[1], the Macro-Scenario Model[2] (MSM), and the Global Link Model[3] (GLM) to assess the impact on public companies’ credit risk across countries and industries under a hypothetical global pessimistic scenario. This research revisits the scenario analysis using an extreme tariffs scenario, published in March 2025 and developed by S&P Global Market Intelligence’s economists, based on the following assumptions.
- The United States will impose a tariff of 60% on China, 25% on Canada and Mexico, and 20% on the rest of the world.
- Full retaliation will occur from China, Mexico, and Canada, with energy goods from Canada excluded.
- The European Union will retaliate on final consumer goods.
Announced by President Donald Trump on April 2, the United States plans to impose an additional tariff of 34% on China, resulting in an effective tariff rate of 54%. Additionally, a tariff of 20% will be applied on European Union. Mexico and Canada will face a baseline tariff of 10% applicable globally. With the wrestling between China and the United States becoming intensified, the United States tacked on another 50% tariffs across all Chinese imports starting from April 9, resulting in an overall rate of 104%. The situation is evolving so rapidly that our scenario analysis might not fully capture the ultimate impact. Further analysis will follow once the tariff situation is finalized.
As illustrated in Figure 1, a comparison of the current probability of default (PD), as of the end of February, with the scenario PD indicates that the credit risk for public companies in Germany and the United Kingdom will experience the most significant deterioration, with the United States following in third place. Interestingly, despite being targeted by the United States, China is expected to face a milder impact.
Figure 1: Relative difference between current and scenario median PD of public companies, by country
Source: S&P Global Market Intelligence. As of April 7, 2025.
Among all sectors, the Insurance, Utility, and Real Estate sectors will be least affected. Conversely, the Consumer & Services[DS1] [AL2] [4], Construction & Materials, and Energy sectors will be most vulnerable across most countries. Detailed insights are presented in Figure 2
- Energy: The reduction in international trade and demand is expected to push oil prices down further from current levels, negatively impacting the revenues and margins of energy producers. The median PD for US Energy sector is projected to increase by approximately 8.5%.
- Consumer & Services: Tariffs on imported intermediate goods will escalate input costs. The resulting price increases passed on to consumers will exacerbate inflationary pressures, leading to reduced consumer spending. The median PD for US Consumer & Services sector is forecasted to rise by around 7%.
- Construction & Materials: Key construction materials such steel, aluminum, and timber are anticipated to become more expensive, resulting in a slowdown in construction investment activities. The median PD for US Construction & Materials sector is expected to increase by around 6.5%.
Figure 2: Relative difference between current and scenario median PD of public companies, by sector
Source: S&P Global Market Intelligence. As of April 7, 2025.
The complete ranking of sectors impacted in the tariffs scenario for each country is presented in Table 1.
Table 1: Sector ranking per country (1: most affected, 13: least affected)
Source: S&P Global Market Intelligence. As of April 7, 2025.
For more information about the models discussed in this analysis, please reach out to us here.
[1] A quantitative credit risk assessment model incorporates financial risk, business risk, and market-driven factors.
[2] A statistical model that connects credit risk transition to macro-economic forecasts. Model version 2.0.
[3] A global macroeconomic model that links individual country models with each other and with key global drivers of performance.
[4] This sector includes the production, distribution, and retail of consumer durables, consumer discretionary, and consumer staples, and the provision of consumer services.
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