S&P Global: The trade war will not affect the credit ratings of the US and China in the short term. According to S&P Global, following Trump's tariff hikes, the US rating remains stable, while China's rating has been downgraded by Fitch.

In early April 2025, President Trump of the United States announced tariffs on global goods imported into the U.S., raising market concerns regarding the sovereign credit ratings of both China and the U.S. S&P Global indicated that in the short term, the trade war would not directly impact the sovereign credit ratings of China and the U.S., maintaining a stable outlook for the U.S.'s AA+ credit rating and noting the resilience of China's A+ credit rating. However, after Trump's announcement of tariffs, Fitch downgraded China's credit rating by one notch, becoming the first major agency to adjust China's credit rating.

S&P: Resilient US-China Ratings in the Short Term

Roberto Sifon-Arevalo, Managing Director and Chief Sovereign Analyst at S&P Global, stated in late April during interviews with multiple media outlets that despite escalating trade tensions between the US and China, "the credit ratings of China and the US are unlikely to be impacted by the trade war in the short term." He noted that the real impact on ratings might be felt by countries already on a negative outlook or close to a downgrade, particularly poorer economies.

S&P emphasized that the US's AA+ sovereign credit rating still maintains a "stable" outlook and has not changed due to the Trump administration's tariff policies. This stance was reiterated just days before Trump announced a new round of global tariff measures in early April. S&P has not adjusted the US rating since downgrading it from the top AAA rating to AA+ in 2011.

For China, S&P has also not downgraded its A+ rating since 2017. Arevalo pointed out that when assessing sovereign credit, rating agencies do not base their evaluations solely on the duration of tariffs but are more concerned about the emergence of other "more unexpected shocks" and whether the Chinese government will implement sufficient stimulus measures to offset the economic pressure from tariffs.

Market Expectations and Model Data: Investors Hold a More Pessimistic View on Rating Outlook

Although S&P has not officially adjusted the US-China ratings, its model based on credit default swap (CDS) market data indicates that investors hold a more pessimistic view of future rating trends. According to the model, the market currently expects the US sovereign credit rating to potentially be downgraded by up to five notches, while China's A+ rating may face pressure for a three-notch downgrade.

This model reflects market concerns about the uncertainty of the Trump administration's trade policies. S&P noted that the US's government debt level, close to 100% of GDP, and a fiscal deficit of 6% to 7% of GDP are among the main weaknesses of its credit rating. Coupled with trade policy uncertainty, this further heightens market attention to US credit risk.

Fitch Promptly Downgrades China's Rating

In contrast to S&P's cautious stance, Fitch promptly downgraded China's sovereign credit rating by one notch the day after Trump announced new tariff measures. This marks the first downgrade action by a major rating agency for China since 2017. Fitch did not publicly disclose the specific post-downgrade rating level, but this move indicates the agency's concerns about China's economic resilience under high tariff pressure.

According to S&P's observations, a rating downgrade does not imply the onset of a full-blown crisis. Arevalo stated, "When this period of pressure began, people recalled the COVID-19 era and started to wonder if this would be another global crisis. But when you start to look at the big picture and analyze the transmission channels, the issues remain, but whether this is enough to significantly alter the credit status of global sovereign nations remains to be seen."

Ratings Still Have "Room to Maneuver," But Future Developments Need Attention

Arevalo further stated that for both the US and China, the ratings "still have room to maneuver." He noted that the key to deciding whether to adjust ratings lies not in how long tariffs persist but in whether some resolution on tariff issues can be reached in the coming months and whether other sudden shocks occur.

For China, another key factor is whether its government will introduce sufficient fiscal and monetary stimulus measures to offset the negative economic impact of tariffs. S&P also cautioned that if global commodity prices, such as oil and metals, experience a long-term decline, it will put greater pressure on countries reliant on these resources for export, thereby affecting their credit ratings.

References

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• S&P Global sees credit rating breathing room for trade war rivals US and China
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