The agreement on the duties at 15% between the USA and the EU does not eliminate all the uncertainties that have conditioned commercial exchanges to date, but represents a base for managing future relationships. In this context, S&P believes that the agreement should not significantly affect the quality of the credit of European companies and the effects should remain manageable, although diversified sector by sector. This is what emerges from an analysis of S&P Global Rings on the commercial agreement between the European Union and the United States and the effects – direct and indirect – for European companies.
Too many indeterminate details
Although the EU-USA commercial agreement is indicative of a relationship manageable between the two economies, it must be considered that the commitments made in Scotland between Trump and Von der Leyen are general agreements, it is not yet legally binding, and there seem to be different interpretations of what is agreed in some sectors. Among other things, S&P does not believe that a legal draft of the agreement is ready shortly and this represents a source of uncertainty in the transitional period.
The 15%duty, in fact, does not represent a maximum guaranteed roof for all EU sectors and still significant areas of uncertainty remain regarding the treatment of some sectors, such as the automotive one, which in the meantime remains subject to a duty of 27.5%, that of steel and aluminum, which remains subject to a 50%duty, or that of the semiconductors, which could undergo the effects of excessive exposure to the automotive sector, from the moment many European companies such as Finally And STM make half of the turnover (or almost) in this sector. For the rating agency, open questions remain on a series of sectors, such as the automotive, pharmaceutical, metallurgical and semiconductor, which could be subject to different contingent duties.
Gutting effect manageable but must be considered indirect effects
S&P believes that the deterioration of the commercial prospects deriving from the US duties is manageable in most of the EU company sectors. However, a weak dollar is exacerbating the impact of the duties, adding pressure on the revenues and Ebitda expressed in euros.
Therefore, the indirect effects of the agreement, such as the worsening of the conditions of global trade, the uncertainty on the markets, the potential interruptions in the supply chains and a weakening of the dollar, could exercise the most relevant pressure on the European companies compared to the duty itself.
The agency, therefore, provides pressure on the rating in a series of sectors, such as the automotive one, despite the possibility of a lower rate than the current 27.5%, and the chemical one. In these two sectors, the direct and indirect effects of the duties are aggravating the obstacles deriving from the weakness of the demand and other factors, which have led to revisions of the prospects and some rating downgrades. In other sectors, specific pressures on creditworthiness are not observed.
Risks not completely zeroed
The EU-USA commercial agreement, together with the commitment recently assumed by the European members of NATO to increase the expenditure for the defense-underlines S&P-suggests that the potential risks related to unilateralism of the United States have partially mitigated, while remaining subject to uncertainty in the context of the “America First” policy of the current US administration. Trump, in fact, could at any time return to his steps, portraying the preliminary agreements taken, as he has shown to date.
A noteworthy aspect of the EU-USA agreement, recalls the agency, is the EU commitment that invests 600 billion dollars in the United States by 2029. “We believe that this statement is an aspiration rather than a firm commitment, and we wonder how these investments will be identified and monitored.-underlines S&P-Furthermore, considering the significant amounts involved, it is reasonable that the EU companies will have to reconsider of investment in Europe and in other regions.
