High trade costs, ongoing uncertainty weighs on corporate planning, investment.

Protectionist U.S. trade policy is raising the cost of global trade and poses a downside risk to the global credit outlook, says Moody’s Ratings.

In a new report, the rating agency said that the current state of the U.S. trade war — with higher import tariffs being imposed on 68 countries as of Aug. 1 — is estimated to push the current U.S. effective tariff rate to 18%, which is slightly higher than the 10% to 15% range forecast by Moody’s earlier this year.

“While that difference is not large, relative to the increase in tariffs since 2024, there are still clear downside risks from U.S. trade policy,” it noted.

To start, the sharp rise in effective tariff rates will increase global trade costs — which cuts into corporate margins and/or raises consumer prices — and represents a threat to the global credit outlook, particularly for certain sectors and countries, the report said.

“Most exposed to higher tariffs are Asia-Pacific economies because of their heavy reliance on trade and high exposure to goods exports to the U.S.,” it said.

In particular, certain highly integrated sectors — such as the auto, manufacturing and technology sectors — along with the consumer goods and retail sectors, are also highly exposed to U.S. policy, “especially if trade negotiations fall apart and higher interest rates linger.”

Additionally, the erratic U.S. trade policy also continues to create widespread uncertainty that, “will continue to hamper business planning and investment,” it said.

“Fluctuating tariff levels, protracted negotiations with uncertain outcomes and potential tariffs under different authorities continue to weigh on consumer sentiment and complicate business decisions,” it noted.

In a separate report, Moody’s also noted that the preliminary trade deal between the U.S. and the European Union, which was announced on July 27, offers a temporary reprieve from the worst impacts of trade turmoil, but doesn’t put an end to the threat.

The initial deal, “helps avoid the severe economic effect that the 30% tariffs and a likely trans-Atlantic trade war would have caused,” the report noted.

However, that agreement also reflects higher trade costs, and there’s continued uncertainty over the details of a final agreement, it said — along with the risk that trade talks, “could still breakdown,” which continues to weigh on corporate planning and investment.