S&P Maintains US Credit Rating, Anticipates Tariff Revenue Will Offset Tax Bill Deficit

TradingKey - On Monday, August 18, S&P Global Ratings, one of the world's three major credit rating agencies, announced that it is maintaining the United States’ sovereign credit rating. The long-term rating remains at AA+, the short-term rating at A-1+, and the long-term credit outlook is stable.

The agency noted that while the tax cuts and spending policies of the Big Beautiful Bill Act will impact the fiscal situation, the expected increase in tariff revenues is anticipated to partially offset the financial impact. Therefore, the rating was not downgraded, and the United States is expected to maintain its credit strength.

Bloomberg indicated that this latest credit rating is favorable for the Trump administration, as it contrasts with the widespread belief that tariffs would dampen the US economy. S&P analysts also pointed out that tariffs, at the very least, could boost government revenue.

In mid-August, the US Treasury released data showing that US customs tariff revenue in July surged to $28 billion, a 273% increase from the same period last year, marking a record high for a single month. As of July, the total tariff revenue for the fiscal year reached $142 billion. 

Previously, US Treasury Secretary Bessent projected that the annual tariff revenue could reach $300 billion by 2025, with the potential for further increases in 2026.

However, there is still uncertainty about the extent to which tariff revenue alone can offset the impact of the soaring deficit. Despite the record tariff revenue in July, the fiscal deficit that month still reached $291 billion, a 10% increase from the same period last year, setting the second-highest monthly deficit record for July in US history.

This data aligns closely with the conclusions of Lombard Odier strategists, who argue that the rating adjustment does not signify any substantial change in the US's fiscal health, which remains a complex issue.

In fact, S&P also stated that maintaining the stable outlook for the US credit rating does not suggest an improvement in the fiscal deficit; it merely indicates that it is not expected to deteriorate further over the coming years.

Economists generally believe that structural pressures, including interest on public debt and welfare spending, are the key determinants of the US fiscal outlook.

In May of this year, the US lost its last top rating from the three major credit rating agencies when Moody's downgraded the US rating from Aaa to Aa1, citing the continually expanding fiscal deficit and heavy federal debt burden. Previously, both Fitch and S&P had downgraded the US rating from AAA, also due to the deteriorating debt outlook.

According to estimates from the Congressional Budget Office (CBO), the Tax Bill will increase the US budget deficit by $3.4 trillion over the next decade. S&P predicts that the general government net debt of the US will exceed 100% of GDP in the next three years.