Fitch cuts estimate of US effective tariff rate to 12.7%

Fitch Ratings has updated its U.S. Effective Tariff Rate (ETR) Monitor and now estimates the overall U.S. ETR at 12.7%, down from 13.6% published in the Nov. 5 update.

The decline reflects a reduction in the combined tariff rate on Indian imports, from 50% to 18%, along with lower tariffs on Switzerland and revised ETR estimates for Canada and Mexico.

The U.S.’s new trade deal with India, announced Feb. 2, cut the U.S. reciprocal tariff on India to 18% from 25%, effective immediately.

Reports indicated that a separate 25% penalty tariff linked to India’s purchases of Russian oil would also be lifted. With these changes, India’s ETR declined to 15.6% from 35.2%.

The U.S.-Switzerland-Liechtenstein framework that became effective on Nov. 14 established a 15% reciprocal tariff rate, replacing the prior 39%. Fitch’s estimated ETR for Switzerland subsequently falling to 6.1% from 14.6%.

Estimated ETRs for Canada and Mexico have also moved lower, with Canada declining to 4.6% from 5.9% and Mexico to 5.4% from 5.8%. This reflects updated customs data through November that shows, on average, about 84% of imports from Mexico and about 88% of imports from Canada entered the U.S. duty-free between September and November.

Fitch now assumes that 80% of goods imports from Mexico and 85% of goods imports from Canada will be duty-free under the current tariff regime, compared with an earlier assumption of 75%.

This update to the ETR Monitor also reflects new data on actual import flows by country through November. China’s elevated effective tariff rate has led to a sharp decline in imports from China, with levels in Nov down roughly 45% from 2024.

Imports from China as a share of total U.S. imports fell to about 8.0% in November from around 13.4% at the end of 2024. This decline was offset by increases in imports from Vietnam and Taiwan, which have ETRs of 12.7% and 3.5%, respectively: Vietnam’s share rose to around 6.5% in in November, while Taiwan’s share increased to about 7.7% from about 3.6% over the same period.

Imports from China as of Nov were down roughly 45% from 2024 levels, compared with imports from Vietnam, which jumped by 42%, and imports from Taiwan, which surged by 118%, largely due to chip imports driven by the AI investment boom.

The actual effective tariff rate on all U.S. goods imports fell to 9.8% in November from 11.0% in October, primarily due to a notable decline in the tariff rate on imports from China, to 31% from 37% over that month.

China’s actual ETR in November remained the highest among major U.S. trading partners.

The U.S. continues to run a trade deficit of roughly $1.0 trillion on an annualized basis. This has not significantly changed over the last five years, except for the spike in imports following Trump’s major “Liberation Day” tariff announcement in April.