This report does not constitute a rating action.

The imposition of trade tariffs and related policy shifts have disrupted markets. The effects have been felt, to varying degrees, across all asset classes, yet direct and material effects on credit quality are limited so far. Our analysis suggests that tariff-related deteriorations in issuers' credit quality typically result from entity-specific characteristics.

We expect this trend will continue over the coming quarters. Yet, if tariff-induced risks persist over the medium to long term, indirect effects from the global deterioration of macroeconomic conditions could weigh on a broad range of entities--albeit likely on a credit-by-credit basis.

Tariffs' Credit Implications: Our Framework

To help navigate the evolving tariff landscape and understand the implications of trade policies, we developed an analytical framework that aims to identify direct and indirect vulnerabilities for issuers across sectors. Our assessment considers exposure to tariff-related issues, timing, and the likely financial materiality(see tables 1 and 2). The second part of this report provides a deeper dive into the sector-by-sector credit implications of tariffs, drawing on our most recent publications.

Table 1

Table 2

Our Global Credit Conditions Forecast Underpins Key Tariff Assumptions

S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and possible responses--specifically with regard to tariffs--and the potential effect on economies, supply chains, and credit conditions around the world. As a result, our baseline forecasts carry a significant amount of uncertainty(see our research here: spglobal.com/ratings).

We have regularly updated our macroeconomic forecasts to reflect the ongoing evolution of U.S. trade policies and those of its trading partners. Our latest base-case forecasts date from May 1 , 2025 (see "Economic Research: Global Macro Update: Seismic Shift In U.S. Trade Policy Will Slow World Growth," May 1, 2025). Since then, negotiations between the U.S. and various trading blocs have pointed toward de-escalation, and financial markets have reacted positively. If this trend continues, our previous forecast from March 5 could (see "Economic Research: Growth Prospects Strained After The U.S. Takes The Tariff Plunge," March 5, 2025). Most notably, the recent de-escalation on May 12 includes the temporary adoption of lower tariffs between the U.S. and China.

Most reductions in announced tariffs could expire and significant uncertainty remains whether trade flows will permanently change or return to previously established policy norms. The global trade environment will therefore likely continue to weigh on credit quality, even if some of the more extreme risks have eased for now.

Our economic forecasts combine direct and indirect tariffs effects. The direct effects are a function of the size of the tariff and countries' or regions' exposure to the U.S. as a trading partner. The indirect effects comprise lower economic growth among all trading partners, as well as the effects on consumer confidence and market uncertainty. We note that the U.S. administration's 90-day pause on many country-specific tariffs has not fully alleviated these indirect effects.

Our base case currently includes the following assumptions:

• A 10% across-the-board tariff on imports to the U.S. from all trading partners, as announced on April 2. Our assumptions did not incorporate the country-specific reciprocal tariffs, which were paused for 90 days, as per the announcement on April 9 (see chart 1);
• A 25% U.S. import tariff on autos, pharmaceuticals, and semiconductors. Our base case assumes these tariffs will remain in place over the next few years;
• A 50% tariff on steel and aluminum (from 25% previously); and
• An effective tariff rate of roughly 40% on Chinese imports to the U.S. and 25% on U.S. exports to China.

Chart 1

While some countries, such as the U.K., have negotiated bilateral tariff deals with the U.S., the final deal parameters remain unclear. This uncertainty notably reflects the U.S. administration's expansive use of trade measures to address a wide range of issues. Beyond the balancing of the U.S.'s trade deficit, the U.S. administration aims to tackle other, non-tariff-related barriers that could be perceived as disadvantaging U.S. growth. This includes value-added tax in Europe, which countries levy uniformly on all business, whether domestic or foreign.

The U.S. administration has also sought to leverage the benefits of strategic defense alliances, such as the North Atlantic Treaty Organization (NATO), by offering partners benefits in trade negotiations. These tactics create further uncertainty and complicate efforts to resolve trade disputes in a transparent and consistent manner.

The number of rating actions (30) that we have taken since tariffs were announced in March this year remains limited but is increasing (see chart 2). Most rating actions related to corporate issuers share certain features, namely:

• Large operations in the U.S. that are subject to weakening discretionary spending due to economic uncertainty;
• Significant reliance on Chinese imports that are subject to elevated tariffs that could weigh on profitability;
• Significant goods imports to the U.S.;
• Assembly lines in the U.S. that heavily rely on imported parts, which are subject to tariffs; or
• Use of the U.S. as an export hub to China.

The rating actions we have taken mostly comprise outlook revisions. We have only downgraded nine issuers since March, mainly due to a combination of tariffs effects, already tight financial headroom, and highly leveraged balance sheets. A high proportion of the affected issuers are rated 'B' or below.

Chart 2

We publish a biweekly newsletter (see "Global Tariff Tracker") that tracks rating actions we have taken globally on nonfinancial and financial corporate, sovereign, U.S. public finance, international public finance, and structured finance entities, and provides summary tables and supporting charts. These are public ratings in which 2025 tariff pronouncements are a primary driver of the action.

Key Outcomes By Asset Class

Corporates

Table 3

North American corporate issuers

U.S. tariffs will have a significant effect on certain corporate sectors, particularly those with high exposure to imported goods. The sectors most at risk include consumer goods, durable goods, and apparel, which will face significantly higher tariffs on imports from China. This will lead to higher costs, likely reduced profit margins, and potentially negative rating actions for issuers in these sectors. Inflationary risks from tariffs could lead to higher interest rates and result in higher interest burdens and lower cash flows for some companies. We expect issuers with strong credit buffers and pricing power will be better positioned to mitigate these risks.

• In the consumer goods sector, we estimate that 10%-15% of issuers could face negative rating actions due to tariff exposure. Durable goods, apparel, and consumer staples that rely on imported inputs will be most affected (see "Consumer Products And Retail: Durable Goods And Apparel Brace For The Brunt Of U.S. Tariffs," May 1, 2025).
• Cracks in consumer confidence amid tariffs and inflation could lead to tighter U.S. leisure spending. Trade conflicts and market volatility may continue to weigh on consumer and business sentiment, while travel and entertainment spending decisions could be delayed or cancelled (see "Cracks In Consumer Confidence Amid Tariffs And Inflation Could Lead To Tighter U.S. Leisure Spending," May 22, 2025).

• The U.S. tech sector faces significant trade policy uncertainty due to tariffs on imports from China and reciprocal tariffs on the rest of the world. We expect global IT spending growth will slow to 5%-7% in 2025, with PCs and smartphones most affected (see "Tech Titans Tack Through Trade Turbulence," May 8, 2025). Tariffs will affect consumer-focused products, with enterprise-focused hardware less affected.
• We think about 15% of issuers in the U.S. capital goods sector are at risk of negative rating actions. We estimate that the current effective tariff rate of 24% in the U.S. will increase total costs in the sector by 8%-10% (see "U.S. Capital Goods Companies Price In Tariff Costs To Defend Credit," May 7, 2025).
• The containers and packaging sector is facing risks due to tariff-induced volatility. The sector is largely insulated from direct effects of tariffs, but demand volatility caused by trade tensions is the most imminent credit risk (see "U.S. Containers & Packaging Newsletter: Tariff Induced Volatility Creates Risks For The Industry, May 8, 2025).

Charts 3 and 4

European corporate issuers

Most European corporates, except for light vehicle manufacturers, can manage the immediate effects of U.S. tariffs (for more information see the "Spotlight on the global auto sector" below). This is because they have local production sites in the U.S. or can pass on tariffs to customers (see "Most European Corporates Can Manage The Immediate Effects Of U.S. Tariffs, April 4, 2025). Additionally, issuers have devised several strategies, including:

• Front-running the tariffs believed to be forthcoming;
• Optimizing supply chains to build resilience;
• Delaying any decisions about investing in or relocating operations to the U.S.;
• Modifying U.S. transportation routes to minimize likely service fees; and
• Rerouting price-sensitive goods that face high tariffs from the U.S. to other markets.

Chart 5

However, all this will increase both costs and operating complexity for European businesses. Certain entities, rather than entire sectors, are more exposed to the negative effects of tariffs. Uncertainty about European businesses' trade relations with the U.S. will not dissipate any time soon (see "European Firms Navigate U.S. Trade Fog," May 22, 2025).

More significant than the baseline tariff are the strategic 50% tariffs, which were at 25% previously. The U.S. administration applied them to steel, aluminum, and autos, and will likely also apply them to pharmaceuticals, semiconductors, and lumber (see chart 5). In these cases, the disruption is material. However, some European producers of steel, aluminum, and autos undertook significant front-running to increase inventory in the U.S. before the tariffs took effect on March 12 (steel and aluminum) and April 3 (autos).

• We believe the metals and mining sector will experience more significant pressure. This is because of higher energy costs, weaker demand, and low steel and aluminum prices. The permanency of import tariffs and the extension of tariffs to Asia-Pacific will amplify the exposure of European metals and mining companies.
• Parts of the consumer goods sector could also be vulnerable to U.S. tariffs. For example, luxury goods companies may face reduced consumer spending and a decline in U.S. sales of luxury items due to tariffs. Alcoholic beverages companies may also be affected due to their exposure to U.S. markets. Both sectors have some ability to increase prices. However, their local production footprints are limited, which reduces their ability to mitigate tariffs (see "EMEA Consumer Goods And Retail: U.S. Tariffs Will Hit Alcohol And Luxury Goods Hardest," April 7, 2025).
• Shipping companies face indirect impacts of U.S. tariffs applied to goods from Europe, which may lead to lower volumes, increased costs and reduced competitiveness.
• The chemicals sector will experience limited direct effects due to local production in the U.S. Yet indirect effects such as supply chain risks and increased costs for specialty chemical producers could be substantial. Companies that depend on Chinese critical raw materials may face significant cost increases if tariffs disrupt flows (see "U.S. Tariffs Aren't The Main Problem For European Chemical Companies," March 6, 2025).
• Capital goods companies are most exposed to risks from U.S. tariffs because of the end-markets they serve. These include autos, consumers, construction, agriculture, and general engineering. Even though European companies with local production in the U.S. are less affected, those with significant exports to the U.S. and limited local production may face challenges.
• So far, European commercial real estate companies seem resilient to shifts in U.S. trade policy, despite high real interest rates and volatile construction costs. However, the current conditions may slow the recovery in European real estate values. The most affected areas are likely to be non-prime office segments(see "European Commercial Real Estate Companies Hardly Affected By Shifts In U.S. Trade Policy," May 20, 2025).

Charts 6 and 7

Asia-Pacific corporate issuers

The sectors we see as most exposed to the negative effects of U.S. tariffs include autos, machinery, metals, and chemicals, particularly in Japan and Korea. China's growth slowdown, which we expect will continue despite recent stimulus measures, will likely hit the industrial, power, transport, property, and consumer sectors the hardest. This is even more the case in light of the increasing replacement of non-Chinese brands with domestic alternatives (see "Credit Conditions Asia-Pacific Special Update: U.S.-China Ties In Uncharted Territory," April 15, 2025).

In a prolonged high tariff scenario, we anticipate a knock-on effect on mining in Australia, minerals and intermediate metals in Indonesia, and steel and chemicals across Asia-Pacific.

The indirect effects of U.S. tariffs, including a global or regional slowdown, are a material risk for many sectors in Asia-Pacific . For example, exports account for 80% of GDP in Vietnam and 20% of GDP in Indonesia. The risk of a sudden influx of cheap goods in regional markets to offset a loss of access to the U.S. market also poses a significant threat to regional steel, textile, apparel, and chemicals sectors.

U.S. tariffs will also reshape trade flows for Asia-Pacific agrochemicals. The new U.S. tariffs could benefit countries that are subject to lower tariffs than China (see table 4). The U.S. is among the top five importers of crop protection products, which include insecticides, herbicides, and fungicides. Half of these imports originate from China.

China's exports are becoming costly because of the U.S.'s 30% tariff on Chinese goods. As a result, China may divert these exports to other geographies, with India set to capture a larger market share.

Table 4

Charts 8 and 9

Spotlight on the global auto sector

The global auto sector is most affected by U.S. tariffs. The tariffs will increase imported vehicles' cost per unit, potentially leading to the discontinuation of some models that might be popular among price-sensitive consumers. The extension of the tariffs to the Asia-Pacific region represents a major challenge for Japanese and South Korean light vehicle manufacturers (see "Asian Autos: Driving Through Rough Terrain," May 15, 2025).

The relocation of production capacity to the U.S. is hindered by the necessity to redesign supply chains and staff shortages. Both put pressure on the cost base of automakers and suppliers, which aim to rationalize spending to compete with more agile Chinese peers.

Tariff effects will differ across the industry. Prolonged tariffs on all auto imports to the U.S. and a decline in car part imports will have a multi-billion-dollar effect on the earnings of automakers with sizeable operations in the U.S. (see chart 11).

We expect margin declines for most issuers. Cash flow volatility for auto manufacturers will be high over 2025-2026 and lead to credit deterioration, particularly for some lower-rated auto suppliers. Downside risk will also depend on auto manufacturers' ability to pass through costs to consumers without reducing demand.

European carmakers will all be affected, despite production sites in the U.S. This is because most have a global production footprint, based on the assumption of free trade. Some companies indicated that negative tariff effects could decrease from the second half of 2025.

China's carmakers are already suffering from overcapacity, price wars, and the transition to electric vehicles. We expect U.S. tariffs will increase pressure on rated companies' cash flows over the next 12-24 months (see "U.S. Tariffs Place Another Straw On The Back Of China Carmakers," May 15, 2025).

Many Japanese automakers and suppliers export their products to the U.S. from countries such as Mexico, Canada, and Japan. This directly exposes them to higher tariffs. Yet, the U.S. market is very important for major Japanese automakers and accounts for 20%-40% of total sales, depending on the auto manufacturer. Tariffs raise the incentive to invest in the local market.

South Korean companies , such as Hyundai Kia, have some buffers against their high exposure to U.S. tariffs and may increase investments in the U.S. to mitigate the risks (see chart 11).

The direct tariff effects on auto suppliers might be less pronounced than those on carmakers, but they will ultimately assume the risks arising from volume pressures, notably as carmakers tariff-related costs are passed on to an end market that is price sensitive.

Chart 10

Chart 11

Global Infrastructure

Table 5

We view the effect of U.S. tariffs on global infrastructure assets as limited over the short term (see table 6). However, the long-term implications are uncertain (see "For A Resilient Global Infrastructure Sector, The Immediate Impact From Tariffs Will Be Limited," May 14, 2025). The sector's resilience to market events is based on long-term investments with stable cash flows, and generally investment-grade rating quality. That said, the sector is vulnerable to the increasingly protectionist U.S. trade policy and the resulting ripple effects, including investors' increasing risk aversion and flight to safety.

• Credit pressure on infrastructure companies could increase if access to liquidity decreases. This is particularly the case for companies or projects that exhibit negative free operating cash flows and rely on ongoing funding.
• Global supply chain disruptions, which could be meaningful for infrastructure companies that support the global supply chain--such as ports, toll roads, and airports--also pose a risk. Even though a decline in global trade could directly affect ports in Central America, rated port facilities, such as the Panama Canal, have low leverage and are likely able to absorb a decline in traffic without facing a downgrade over the near term.
• Asian ports, particularly those in China, face unprecedented throughput challenges due to U.S. tariffs. This could lead to a prolonged plunge in volumes on China-U.S. routes, impair port operations, and lead to the rerouting of goods via other countries (see "Asian Ports To Face Their Stiffest Test," April 28, 2025).
• We expect any secondary tariff effects may take nine to 12 months to impact the sector. This gives entities time to adjust their capital expenditure, reduce dividends, and take advantage of their strong relationships with banks and sound liquidity to navigate market uncertainty.

Table 6

Governments

Table 7

Sovereigns

We expect most sovereigns will maintain the current ratings, as they weather the direct effects of trade tensions (see chart 12). However, heightened uncertainty and elevated market volatility pose risks to sovereigns with significant exports to the U.S. and those with weak fiscal and external positions (see "Sovereigns Are Likely To Weather The Direct Impact Of Trade Tensions While Secondary Effects Loom," April 24, 2025). For example, exports represent 36% of GDP in Mexico and over 80% in Vietnam, while they only account for 19% of GDP in China and 18% in Brazil.

The other factor to consider is the main destination of exports. In Vietnam, for example, only 28% of exports are destined for the U.S., compared with about 15% in China. In contrast, the U.S. accounts for about 80% of Mexico's and Canada's exports. Market diversification will determine tariff effects.

Chart 12

While direct tariff effects will likely be limited, secondary effects--such as slower economic activity, lower commodity prices, and elevated funding costs--could take a toll on credit quality over the next few months. Additionally, geopolitical tensions, which are still at their worst in decades, have the largest potential for causing disruption, in our view. Trade tensions could further exacerbate the potential for more military confrontations. In Europe, we are already seeing the fiscal effects, as many nations embark on a rearmament process not seen since World War II.

• Europe's trade-intensive economies still face 50% tariffs on steel, aluminum, autos, and auto parts, while the pharmaceutical sector is likely to be targeted soon. However, a few mitigating factors exist. The second-round effects of rising global protectionism for Europe will help reduce inflation. In Central and Eastern Europe and Turkiye, things are more complicated as some sovereigns have weaker fiscal positions, higher inflation rates, and open economies with large auto sector exposures make them more vulnerable to global trade and growth shocks.
• In the Middle East and North Africa, tariff increases could weaken regional exports and fiscal earnings, reduce inward investment, raise borrowing costs, and constrain growth. These effects could leave governments with already strained fiscal positions more vulnerable to further shocks.
• The most pronounced tariff effects on economic performance in the Americas--apart from the U.S., Canada, and Mexico--will likely result from uncertainty about U.S. policies and from the global fallout of possible trade retaliations by other countries. Indirect tariff effects in the region--namely disruptions in global supply chains, economic growth, and financial conditions--could be substantial. Moreover, a potential stagnation or reduction in remittances from the U.S. could lower domestic consumption and GDP growth in Latin America.
• In Asia-Pacific, some governments have rolled out support packages for affected businesses, which could strain governments' fiscal metrics. Furthermore, China faces a more uncertain growth outlook than other countries because of the significantly larger tariff increase originally imposed on Chinese exports. Nevertheless, domestic demand plays a significantly more important role in the Chinese economy than exports.

U.S. states

Similar to sovereigns, U.S. states will likely experience pressure on credit fundamentals from the second-order effects of tariffs, rather than the direct effects. Our stress scenario considers the implications of U.S. state revenues and expenditures similar to those during the two most recent economic and financial shocks: States' general funding revenues decreased by an average of 8.1% during the global financial crisis (2008-2009) and by about 6% during the COVID-19 pandemic (2019-2020).

In a high-tariff scenario, our economists forecast a recession in the U.S. In this recession scenario, we stressed U.S. states' general fund revenues to decline by 5%, while expenditures would increase by 3%. The changes in revenues and expenditures reflect lower consumption-based taxes and income taxes, the potential for higher unemployment, and higher costs for safety-net programs, such as Medicaid, for which enrollment numbers typically increase during an economic downturn or a recession. In this example, most states would have sufficient reserves to cover the resulting budget gaps in 2026 (see chart 13). We excluded potentially available reserves that are outside of the general funding from our calculations.

However, for those U.S. states where general fund reserves did not cover operations in this example, common themes emerged including:

• States with an economic concentration in manufacturing that heightens their vulnerability to tariffs on autos and materials, such as steel and aluminum, that are used to manufacture airplanes and large equipment;
• Revenue collections that can experience wide fluctuations from reliance on equity market performance;
• Where weaker credit fundamentals that are already reflected in the rating; and
• Those with small budgets that could make it more difficult to absorb operational changes.

The following map (see chart 13) represents a slightly different outcome than published in our April report on this subject (see "Uncertainty Clouds 2026 U.S. State Budgets," April 28, 2025) as this is a hypothetical example where we stressed expenditures as well as revenues. Furthermore, we believe U.S. states would implement other structural solutions to maintain budgetary balance before reaching a point where operations would exceed reserves.

Chart 13

Local and regional governments outside the U.S.: Canadian provinces and municipalities

Tariffs on imports to the U.S. will weigh on economic growth and revenues of all Canadian provinces (see chart 14), particularly the three largest ones: British Columbia, Ontario, and Quebec (see "For Canadian Provinces, The Current Credit Complexities Are Not Just About Tariffs," March 5, 2025) and "Canadian Municipalities Are Well Positioned To Weather Temporary Trade Disruption," June 2, 2025). The provinces' borrowing requirements may increase, especially in the case of Alberta and New Brunswick, where 30% of GDP depends on exports to the U.S.

Chart 14

Local and regional governments outside the U.S.: Mexican states

The governments of states in northern and central Mexico may also be affected by higher tariffs. Ten Mexican states--including Queretaro, Guanajuato, and Nuevo Leon--are highly exposed to U.S. tariffs due to their reliance on export-oriented manufacturing (see chart 15). The tariffs could lead to a decline in output of 8%-15%. That said, a weaker exchange rate and producers' willingness to absorb higher costs could mitigate these effects.

Chart 15

Structured Finance

Table 8

U.S.

We believe the effects of tariffs on U.S. structured finance will vary by sector (see "Tariff Impacts Will Vary By Sector In U.S. Structured Finance," April 17, 2025). Overall, we expect direct tariff effects on U.S. structured finance ratings will be limited, even though collateral performance may weaken in certain sectors.

Our analysis suggests that the effects will be more evident in certain sectors, such as collateralized loan obligations (CLOs), where in early April spreads have increased and underlying loan prices have experienced volatility. CLO exposures related to consumer discretionary distribution and retail, as well as automobiles, auto components, and transportation, have experienced above-average declines in loan prices (see chart 16).

In the consumer asset-backed securities (ABS) sector, we expect the main transmission channels for potential deterioration in collateral performance will stem from tariff-related effects on macroeconomic factors , such as rising unemployment, higher interest rates, lower economic growth, and increased inflation. These factors may impair consumers' ability to meet debt payment obligations. (see "SF Credit Brief: Inflation and Affordability Challenges Remain For Consumers Despite Low Unemployment," March 19, 2025) and "Reduced Affordability Contributes To Deteriorating Prime Auto Loan ABS Performance).

U.S. tariffs could also negatively affect commercial mortgage-backed securities' (CMBS) collateral . Ratings performance across the capital stack was already under stress, largely due to underperforming office assets and regional malls. The current economic environment could affect property types such as industrial, lodging, retail, and, to a lesser extent, multifamily.

We expect any effect on residential mortgage-backed securities (RMBS) will be indirect and mixed. This is because the prevalence of fixed-rate mortgages will provide relief in the form on stable monthly payments for many borrowers, even if tariffs lead to weaker economic conditions.

Chart 16

Europe

The severity and volatility of ongoing shifts in U.S. trade policy have increased the chances of a global economic slowdown and heightened uncertainty in financial markets. This could have repercussions for European structured finance, both from an issuance and a credit performance perspective (see "Tariff Effects On European Structured Finance Are Limited," May 23, 2025). Overall, however, we expect limited consequences for our European structured finance ratings.

The European structured finance sector with the highest exposure could be CLOs , but even here we expect the effects will be muted. This is because CLO collateral pools are most concentrated in service-oriented industries, such as health care and software. We only expect a few direct tariff effects, if any, on these sectors. Businesses that sell goods will be exposed to significantly more pronounced effects (see chart 17).

Chart 17

China

Tariffs may lead to a decline in China's GDP growth and rising unemployment rates. This could, which may affect the performance of the underlying collateral of rated structured finance in China, particularly in the auto loan and consumer loan ABS markets. Yet we anticipate resilience among rated transactions that are supported by favorable features, (such as long seasoning and high overcollateralization,) that will lead to growing improve credit enhancement over time (see "Scenario Analysis: Why China ABS And RMBS Ratings Could Be Resilient To Tariff Risks," May 28, 2025).

Financial institutions

Table 9

Intensifying trade tensions and policy uncertainties will weigh on global credit conditions and affect financial institutions unevenly (see table 9). While financial institutions enter this phase from a position of strength, with solid credit fundamentals, they face many unknowns (see "Global Financial Institutions: The Tariff Hits Won't Land Evenly," April 17, 2025). The most imminent risk to global financial institutions is market volatility, while economic slowdown will gradually translate into lower business volumes and higher credit losses.

We expect U.S. banks' earnings will slightly decrease in 2025 due to higher provisions for credit losses (see chart 19). The ratings on about 90% of U.S. banks have stable outlooks, while banks' balance sheets strengthened over the past years. Furthermore, a mild to moderate recession would lead to a manageable decline in profitability, while a more severe recession could hit banks harder, potentially leading to negative rating actions (see "Are U.S. Banks Recession Ready," May 20, 2025).

In contrast, we think European banks will benefit from adequate profitability, sound capitalization, and liquidity in 2025. The outlooks on most ratings are stable, while 11% of European bank ratings have positive outlooks. We believe entities most at risk may include:

• Weaker nonbanks relying on short-term wholesale funding, which are vulnerable to immediate credit damage due to market volatility.
• Banks with significant exposure to countries directly targeted by tariffs (such as Cambodia and Vietnam), which could see asset-quality deterioration.
• Nonbank financial institutions including finance companies, leasing companies, and real estate project financing companies, which may be more vulnerable than banks if tariffs intensify.

Banks with consumer loans, for example those whose exposure to commercial real estate exceeds the peer average , are most at risk due to higher allowance levels required under the Current Expected Credit Loss. A 40% increase in allowances would have a significant effect on earnings, with some banks potentially reporting substantial bottom-line losses.

Chart 18

Chart 19

Global insurance

Similar to other sectors, insurers face new macro-financial risks, spurred by escalating trade tensions. However, they enter this uncertain period from a position of strength, backed by solid capital adequacy and good credit fundamentals. In our base case, we expect ratings stability in the insurance sector over 2025. Despite recent financial market volatility, insurers' capital buffers should remain strong for the year, ensuring resilience against macroeconomic risks.

Prolonged instability could weigh on growth and potentially on some insurers' earnings, yet strong underwriting performance and enhanced risk management practices will help anchor ratings stability.

The insurance industry's investment-heavy nature means it is sensitive to changes in market values. In particular, insurers with a higher equity exposure may face earnings volatility due to financial market fluctuations. Additionally, prolonged market weakness could impair some insurers' balance sheets (see "Robust Capital Supports North American Insurers Amid Market Volatility," April 9, 2025, and "Tariffs Put European Re/Insurance Ratings To The Test," April 9, 2025).

Related Research

•Global Tariff Tracker: Rating Actions As Of June 13, 2025, June 17, 2025

•Canadian Municipalities Are Well Positioned To Weather Temporary Trade Disruption, June 2, 2025

•Tariffs Cloud Corporate Earnings, March 19, 2025

•Why China ABS And RMBS Ratings Could Be Resilient To Tariff Risks, May 28, 2025

•Tariff Effects On European Structured Finance Are Limited, May 23, 2025

•Asia-Pacific Agrochemical Brief: U.S. Tariffs Will Reshape Trade Flows, May 22, 2025

•European Firms Navigate U.S. Trade Fog, May 22, 2025

•Cracks In Consumer Confidence Amid Tariffs And Inflation Could Lead To Tighter U.S. Leisure Spending, May 22, 2025

•European Commercial Real Estate Companies Hardly Affected By Shifts In U.S. Trade Policy, May 20, 2025

•Are U.S. Banks Recession Ready? , May 20, 2025

•U.S. Tariffs Place Another Straw On The Back Of China Carmakers, May 15, 2025

•Asian Autos: Driving Through Rough Terrain, May 15, 2025

•For A Resilient Global Infrastructure Sector, The Immediate Impact From Tariffs Will Be Limited, May 14, 2025

•Tech Titans Tack Through Trade Turbulence, May 8, 2025

•U.S. Containers & Packaging Newsletter: Tariff Induced Volatility Creates Risks For The Industry, May 8, 2025

•U.S. Capital Goods Companies Price In Tariff Costs To Defend Credit, May 7, 2025

•Global Macro Update: Seismic Shift In U.S. Trade Policy Will Slow World Growth, May 1, 2025

•Consumer Products And Retail: Durable Goods And Apparel Brace For The Brunt Of U.S. Tariffs, May 1, 2025

•Asian Ports To Face Their Stiffest Test, April 28, 2025

•Sovereigns Are Likely To Weather The Direct Impact Of Trade Tensions While Secondary Effects Loom, April 24, 2025

•Reduced Affordability Contributes To Deteriorating Prime Auto Loan ABS Performance, April 22, 2025

•Tariff Impacts Will Vary By Sector In U.S. Structured Finance, April 17, 2025

•Global Financial Institutions: The Tariff Hits Won't Land Evenly, April 17, 2025

•Credit Conditions Asia-Pacific Special Update: U.S.-China Ties In Uncharted Territory, April 15, 2025

•Tariffs Take The Wheel: Higher Prices, Lower Sales, Greater Risks For The North American Auto Sector, April 14, 2025

•Robust Capital Supports North American Insurers Amid Market Volatility, April 9, 2025

•Tariffs Put European Re/Insurance Ratings To The Test, April 9, 2025

•EMEA Consumer Goods And Retail: U.S. Tariffs Will Hit Alcohol And Luxury Goods Hardest, April 7, 2025

•Most European Corporates Can Manage The Immediate Effects Of U.S. Tariffs, April 4, 2025

•SF Credit Brief: Inflation and Affordability Challenges Remain For Consumers Despite Low Unemployment, March 19, 2025

•U.S. Tariffs Aren't The Main Problem For European Chemical Companies, March 6, 2025

•Growth Prospects Strained After The U.S. Takes The Tariff Plunge, March 5, 2025

•For Canadian Provinces, The Current Credit Complexities Are Not Just About Tariffs, March 5, 2025

•Some Mexican States Could Be Vulnerable To A Potential Tariff On U.S. Exports, Feb. 27, 2025