On Feb. 1, President Trump announced 25% import tariffs on goods from Mexico and Canada, with Canadian energy products at a lower rate of 10%, and an additional 10% tariff on imports from China. China responded with retaliatory tariffs of 10-15% imposed on certain U.S. products.
On Feb. 3, the United States and Mexico agreed to a one-month pause of tariffs on imports from Mexico and subsequently Canada. Canada and Mexico will also likely start their own tariffs on U.S. goods if the U.S. activates the tariffs.
On Feb. 10, President Trump announced 25% tariffs on imports of steel and aluminum to the United States. This round of tariffs is more broad-based than during the first Trump administration, which were more manageable. In 2018, inflation was about 2%. The tariffs were not as encompassing and did not cover all consumer goods imported from China.
S&P Global Ratings took few rating actions related to tariffs. Companies were able to pass along nearly all the cost increases. In December 2024, the CPI rose 2.9%, a slight uptick from 2.4% in September 2024. The change in CPI peaked to nearly 9% in July 2022 and has gradually come down since, demonstrating the persistent high prices since 2018.
Key takeaways:
- Broad-based tariffs could hurt more U.S. consumer products and retail companies this time around than in 2018. Over 24% of retail credits and 19% of consumer credits have negative outlooks, indicating an above-average negative bias and little headroom for additional macroeconomic pressures.
- Price increases will be harder to pass along to the consumer this time around because of
- the recent inflation cycle and already weak consumer environment.
- Companies cannot rely solely on price increases to mitigate the extra costs imposed by tariffs and retailers will ultimately have to decide how much they can and will pass on to the end consumer.
- Tariffs will hurt U.S. consumers and retail and restaurant companies to varying degrees.
- The consumer is showing signs of weakness. The largest near-term risk to the consumer products and retail industries is the further pressure on an already stretched consumer. While macroeconomic indicators such as consumer spending and low unemployment point to a generally resilient consumer, signs of stress are increasing. Recent preliminary consumer sentiment dropped due to inflation fears. Consumers are spending their savings, using more credit card debt, and the wealth and income gap is widening between higher and lower income earners.
- Cost of essentials remain high. These factors along with higher costs for essentials such as shelter, food, and services has pressured discretionary spending.
