US tariff and trade uncertainty have ‘negative credit consequences for emerging market debt issuers’: Moody’s

Moody’s Ratings said that continued uncertainty surrounding US tariffs is adversely affecting the credit profile of debt issuers across emerging global markets, including corporations, governments, and financial institutions.“The on-again, off-again nature of US tariffs and the difficulty in predicting US trade policy have negative credit consequences for emerging market debt issuers,” Moody’s said in a recent repor. The agency also cited rising geopolitical tensions, such as of India-Pakistan, as additional challenges facing emerging economies, as reported by news agency PTI.While exporters are directly exposed to shifts in US tariff policy, most debt issuers face broader, indirect impacts. These include slower economic growth, commodity price volatility, currency depreciation, and increased investor risk aversion.“The raft of tariffs the US administration has announced, modified, and paused this year continues to weigh on credit conditions for companies, sovereigns, and financial institutions in emerging markets,” Moody’s said.Organisations heavily reliant on US exports are particularly vulnerable. However, the broader consequences of trade policy volatility extend to nearly all emerging market entities, influencing consumer sentiment, business activity, and financial sector performance- even amid evolving tariff arrangements.In early April, the US administration announced sweeping country-specific tariffs, only to suspend them for 90 days shortly thereafter. A baseline 10 per cent tariff remains in effect, with selected exemptions for specific sectors and pre-existing higher rates on items such as steel and aluminium.The US also raised tariffs on most Chinese imports to 145 per cent, prompting China to respond with duties of up to 125 per cent on American goods. On May 14, both nations agreed to a temporary easing of select tariffs for 90 days—reducing US tariffs on Chinese goods to 30 per cent and Chinese tariffs on US imports to 10 per cent.“This development in US-China trade talks helps alleviate some pressure on global trade and improves the balance of risks surrounding the global growth outlook,” Moody’s observed.Nonetheless, US tariffs on other key trading partners and sectors remain in place or under negotiation. The continued trade uncertainty is dampening consumer and business confidence, curbing spending, and delaying investment decisions.Earlier this month, the US secured temporary trade agreements with both China and the UK. “We expect negotiations will open with additional countries, but a full reversal of tariff levels appears unlikely,” Moody’s added.Moody’s statement on US tariffs comes just days after it lowered its top-tier credit rating, Moody’s Investors Service downgraded the country’s long-held Aaa rating to Aa1, citing ballooning government debt and persistent deficits.The credit rating downgrade occurred as US President Donald Trump’s proposed tax and spending bill, worth trillions of dollars, failed to secure approval, facing opposition from fiscally conservative Republicans.With Moody’s latest action following earlier downgrades by S&P in 2011 and Fitch in 2023, the United States no longer maintains a triple-A rating from any of the major credit assessment firms.Moody’sj ustifieded their decision by pointing to the sustained increase in government debt and interest payments over the past decade, which now significantly exceed levels seen in comparably rated nations.The agency forecasts that federal deficits will expand to almost 9% of GDP by 2035, increasing from 6.4% in 2023, primarily due to escalating interest expenses, social programme costs, and constrained revenue growth. This trajectory suggests US federal debt will increase to 134% of GDP by 2035, compared to 98% in the previous year.Read more: Moody’s strips US of last triple-A credit rating over soaring debt: What it means for Trump