S&P Affirms U.S. Credit Rating, Citing Tariff Revenues as Key Offset to Fiscal Strains

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S&P Global Ratings has reaffirmed the United States’ long-term sovereign credit rating at AA+ and short-term rating at A-1+, with the outlook remaining stable. The decision comes as both reassurance and warning: reassurance that the U.S. retains its creditworthiness despite ballooning deficits, and warning that risks to that rating remain significant. S&P’s affirmation underscores the growing role of tariffs as a revenue source, effectively signaling a potential regime change in U.S. fiscal policy.

Why S&P Held Steady

In its assessment, S&P highlighted the resilience and diversity of the U.S. economy, along with credible monetary policy and the dollar’s status as the world’s reserve currency, as fundamental supports for the rating. The agency noted that while recent fiscal legislation has increased deficits, revenues from tariffs are expected to offset much of the deterioration.

“The stable outlook indicates our expectation that although fiscal deficit outcomes won’t meaningfully improve, we don’t project a persistent deterioration over the next several years,” S&P said. “This incorporates our view that changes under way in domestic and international policies won’t weigh on the resilience and diversity of the U.S. economy. And, in turn, broad revenue buoyancy, including robust tariff income, will offset any fiscal slippage from tax cuts and spending increases.”

The emphasis on tariffs marks a turning point. Revenue from customs duties has surged to fresh monthly records, with collections hitting $28 billion in July. Treasury Secretary Scott Bessent recently estimated tariff revenues could exceed 1% of GDP in 2025, a figure that could surpass $300 billion. S&P views this as critical in offsetting the budget impact of Trump’s tax-and-spending package.

A New Fiscal Reality: Tariffs as Revenue Stream

The reliance on tariff revenue has broader implications. Just as the government has historically resisted relinquishing control over critical financial entities like Fannie Mae and Freddie Mac after their conservatorship, the new tariff regime may prove politically difficult to unwind. Tariffs have effectively become a fiscal lever, providing much-needed revenue as traditional deficit-reduction measures remain elusive. Future administrations may find it politically and fiscally challenging to reverse tariffs, given their role in stabilizing government coffers.

This signals what could be a structural shift in U.S. fiscal policy—a reliance on trade levies as an enduring revenue source, rather than a temporary tool of foreign policy. For investors, that regime change matters: it raises questions about inflationary pressures, consumer costs, and the long-term competitiveness of U.S. trade, even as it shores up near-term creditworthiness.

Risks to the Rating

While the affirmation is positive, S&P was clear that risks loom. Net general government debt is expected to approach 100% of GDP in the coming years, fueled by rising interest costs and aging-related expenditures. Deficits, while projected to narrow modestly, are still expected to average 6% of GDP between 2025 and 2028—well above historical norms.

“Bipartisan cooperation to strengthen the U.S. fiscal profile—namely to meaningfully lower deficits and tackle budgetary rigidities—remains elusive,” the agency noted.

S&P also warned of institutional risks, including threats to the independence of the Federal Reserve. “We could lower the rating over the next two to three years if already high deficits increase, reflecting political inability to contain rising spending or to manage revenue implications from changes in the tax code,” the agency wrote. “The ratings could also come under pressure if political developments weigh on the strength of American institutions and the effectiveness of long-term policymaking or independence of the Federal Reserve.” Such erosion could undermine confidence in U.S. institutions and jeopardize the dollar’s role as the world’s primary reserve currency, one of the nation’s key credit strengths.

Market and Economic Backdrop

The affirmation comes amid heightened fiscal anxiety in global markets. Moody’s stripped the U.S. of its last top-tier AAA rating earlier this year, aligning it with S&P and Fitch at AA+. That downgrade sent yields on long-dated Treasuries above 5%, rattling bond investors. By contrast, S&P’s affirmation provided a modest boost: Treasury yields edged lower following the announcement, while the dollar traded little changed.

Still, S&P acknowledged the paradox at the heart of the tariff strategy. Revenues depend on trade flows, but efforts to encourage domestic production and “buy American” consumption could eventually limit those same inflows. Economists remain divided on whether tariffs can provide a sustainable fiscal cushion without undermining growth and job creation. S&P’s own projections reflect this tension, with real GDP growth expected to slow to 1.7% in 2025 and 1.6% in 2026, before averaging 2% in the following years.

The Bigger Picture

At its core, the affirmation reflects both confidence in the enduring strengths of the U.S. economy and concern over its fiscal direction. The wealth and diversity of the U.S. economy, along with the institutional strength of the Federal Reserve and the dollar’s unrivaled status, provide a buffer that few other nations enjoy. But S&P’s language makes clear that this buffer is not infinite.

S&P summed up the balance succinctly: “We expect meaningful tariff revenue to generally offset weaker fiscal outcomes that might otherwise be associated with the recent fiscal legislation, which contains both cuts and increases in tax and spending.”

In other words, tariffs are buying time, not solving the problem. Deficits remain high, debt is rising, and structural reforms remain politically out of reach. The affirmation is good news in the short term, but it hardly means the U.S. is out of the woods.

Conclusion

S&P’s decision to hold the U.S. rating steady underscores a paradoxical moment in American fiscal policy. On the one hand, the government faces persistent deficits, soaring debt, and the absence of bipartisan solutions. On the other, it has stumbled into a revenue windfall via tariffs, providing just enough ballast to keep the credit rating stable. That reliance on tariffs as fiscal lifeline may mark a new era in U.S. policy, one that will be difficult to unwind regardless of who holds the White House.

For markets, the affirmation is a sigh of relief. For policymakers, it is a reminder that the U.S. remains a safe bet—but one that is slowly edging closer to its limits.