The arrears rate for U.S. corporations recorded its highest level in 8 years. As President Donald Trump signaled the imposition of tariffs on various countries, expectations have risen that the financial burdens on corporations will increase, raising concerns about a slowdown in the U.S. economy.
According to BankRegData, which aggregates bank regulatory data, the amount of loans in arrears for U.S. corporations exceeded $28 billion (about 40.3984 trillion won) at the end of last year, marking an increase of $5.4 billion (about 7.7911 trillion won) compared to a year ago. Also, the arrears rate for corporate loans provided by U.S. banks to U.S. and overseas corporations rose to 1.3% at the end of last year. This is the highest level since the first quarter of 2017, indicating a clear upward trend after a long period of low arrears rates in the corporate loan market.
The rise in the arrears rate for corporate loans indicates a deterioration in cash flow for corporations. Generally, when a corporation cannot repay loans on time, it means it is not generating sufficient profits through sales, which may signal a decline in profitability due to reduced consumer spending or increased expenses. Consequently, the repayment of loans by U.S. corporations is becoming more difficult, and there are concerns about a slowdown across the U.S. economy.
Large corporations have the capacity to adapt to the changing trade environment, but small and medium-sized enterprises (SMEs) are likely to struggle to bear the additional cost burden. The Financial Times (FT) analyzed that "SMEs have lower financial and supply chain flexibility and lack capital to navigate uncertainty." David Hamilton, head of capital markets research at Moody's, noted, "While large corporations are relatively stable, SMEs are facing significant difficulties in an environment where high interest rates persist," adding that "if tariffs continue for an extended period, they will impose substantial economic costs on SMEs, and the financial pressure on corporations is likely to remain high."
Despite expectations that the U.S. Federal Reserve (Fed) would begin cutting interest rates with the easing of inflation (persistent price increases) last year, reality is unfolding differently. In January this year, the consumer price index recorded a 3% increase due to skyrocketing food prices, halting the downward trend. As a result, the possibility of the Fed lowering interest rates is diminishing.
Additionally, there are analyses suggesting that President Trump's tariff policy could trigger a new rise in inflation or at least delay the Fed's rate cuts. The New York Times (NYT) reported that President Trump's anticipated "reciprocal tariff" is increasing uncertainty in the U.S. economy and raising inflation risks. Credit rating agency Standard & Poor's (S&P) also estimated that if U.S. tariff policies are maintained this year, consumer prices in the U.S. could temporarily rise by 0.5 to 0.7 percentage points. This suggests that inflation rates in the U.S. could approach 3% by the fourth quarter of this year.
The Tax Foundation, a U.S. tax policy research institution, projected that if the Trump administration imposes a 20% universal tariff and a 60% tariff on China, the U.S. gross domestic product (GDP) would decrease by 1.3% in the long term. Additionally, it predicted that 1.1 million full-time jobs in the U.S. would be lost.
On the 13th, President Trump stated that he would impose tailored reciprocal tariffs on various countries as early as early April, considering the tariffs and non-tariff barriers of trade partners, after signing a presidential memorandum containing the decision.