Notably, these uncertainties come at a time of slowing US and Chinese growth and a faltering recovery in the eurozone, underscoring cyclical vulnerabilities
New York: The risks of a global trade war have risen significantly, with the Trump administration pursuing a more aggressive US trade policy than in our base case, Fitch Ratings said on Tuesday.
Proposed US tariffs, if fully enacted, would likely prompt retaliatory measures resulting in a materially negative effect on global economic growth, with Mexico and Canada being the most exposed.
The looming trade war presents the most clear and direct risk to global credit. But US policy beyond trade is also a key watch item. Many of the Trump administration’s early policy priorities align with our 2024 US election analysis, with a focus on immigration, deregulation, rolling back climate policies and tax cuts. The effects of the policy agenda as a whole on sectors and issuers will be highly variable.
An extension of the 2017 tax cuts is likely and has long been incorporated into Fitch’s economic and credit assumptions. Additional cuts beyond this would provide a tailwind for domestic demand growth and corporate cash flow, both positives for corporate credit profiles. However, this would need to be balanced against the negative effects on public finances.
The net effect of the policy agenda on US inflation remains a key uncertainty and points to persistent interest rate risk. The potential for a 5.0%-6.0% US 10-year treasury yield scenario has risen. This would most likely occur within the context of stronger economic growth but with higher interest rate risk.
Notably, these uncertainties come at a time of slowing US and Chinese growth and a faltering recovery in the eurozone, underscoring cyclical vulnerabilities.