Fitch warns of 'risks' regarding US tariff moves

In a statement from Fitch, it was recalled that on February 1, the White House imposed customs duties on all imports from Mexico and Canada, but that one day before the tariffs were set to take effect, they were suspended for one month for bilateral negotiations on issues such as migration, border security, and trade.

The statement pointed out that in a report published by Fitch in December 2024, it was predicted that the US would make a protectionist turn, but noted that this assumed a 25 percent additional tariff would be applied to 11 percent of imports from Mexico and 21 percent of imports from Canada.

The statement indicated that the customs duties to be applied to almost all imports would lead to a much larger increase in the US's current tariff rates on Canada and Mexico, while noting that the US's application of an additional 10 percent customs duty on goods imported from China was less aggressive than what was predicted in the report.

Pointing out that China is subject to US trade investigations, the statement expressed that it is expected that customs duties on imports from China will increase further this year, consistent with US President Trump defining the 10 percent additional tariff as an "opening salvo" and focusing on reducing US trade deficits.

"WILL PUT PRESSURE ON GLOBAL GROWTH"

While the statement emphasized that it is unclear how the results of the US negotiations with Canada and Mexico, as well as efforts to de-escalate tensions with China, might proceed, it was noted that some interest groups in the US have warned about the negative consequences of the tariffs.

The statement indicated that US trade policy poses a clear and significant risk to the affected countries in terms of Fitch's macroeconomic forecasts, and drew attention to the fact that higher tariffs will put pressure on global growth.

The statement noted that the increase in tariff rates on Canada and Mexico, along with tariff assumptions for imports from other countries, would raise the overall US customs duty rate from 2.3 percent to 13.3 percent. It was recalled that in the December report, this rate was projected to rise to 7.9 percent.

Pointing out that an 11-percentage-point increase in rates is equivalent to an additional $350 billion increase in import taxes, the statement emphasized that this would create upward pressure on consumer prices and firms' input costs.

COULD AFFECT INVESTMENT AND GROWTH

The statement noted that this would lead to a negative 0.4 percentage point impact on US real gross domestic product (GDP) in 2026, and conveyed that the rise in consumer prices in the country would likely further slow down US Federal Reserve (Fed) interest rate cuts.

Stating that the effects on the Mexican and Canadian economies would be greater, the statement noted that the new tariff rates would impact real GDP in 2026 by negative 2.3 percentage points for Mexico and negative 1.4 percentage points for Canada.

The statement emphasized that even if the final tariff increases are less severe, the ongoing uncertainty in US trade policy could affect investment and growth.

Touching upon the possibility that tariffs could encourage policy responses such as fiscal stimulus in China, the statement expressed that a stronger dollar would reflect on exchange rates, price dynamics, and potentially financial conditions through monetary policy adjustments in some US trading partners.