Commentary

Continued Tariff War Would Negatively Affect Retailers and Discretionary Consumer Product Companies Across Borders

Services, Consumers, Industrials

Summary

On March 4, 2025, the Trump administration implemented the previously threatened tariffs on imports from Canada, Mexico, and China. These include a 25% tariff on goods from Mexico and Canada (excluding autos), with a lower 10% tariff on energy products from Canada, as well as an increase to 20% on goods imported from China. While, just two days later, the administration announced a 30-day reprieve on goods imported from Canada and Mexico that are compliant with the existing United States-Mexico-Canada Agreement, considerable uncertainty around tariff implementation and counter measures persists.

Key Highlights:
-- On March 4, 2025, the Trump administration implemented the previously threatened tariffs on imports from Canada, Mexico, and China and is considering reciprocal tariffs on other trade partners.
-- While a temporary reprieve has been announced on goods imported from Canada and Mexico, considerable uncertainty persists.
-- For large retailers and discretionary consumer product companies operating in multiple geographies, these changing trade dynamics and tariffs, if implemented, could pose several challenges including changing consumer behavior, supply chain management, and margin pressures, as well as operational challenges.
-- Any credit rating actions will largely be driven by company-specific impact, risks related to supply chain diversification, and the companies' relative financial strength.

"If the proposed tariffs are implemented, retailers and consumer product companies with more discretionary product offerings will experience financial pressures at least over the near term, ultimately resulting in a negative impact on their credit risk profiles," says Vikas Munjal, Vice President, Corporate Ratings. "The ultimate impact of the trade war will depend upon the duration and intensity of these trade actions and will likely vary by individual subsector."