The biggest categories of US imports from China are computer and electronic products, electrical equipment and components, and textile and apparels, see chart below.
US Imports from China, by Category
Tariffs on Mexico, Canada, and China Would Have a Significant Impact on the US Economy
Goods imports make up 11% of US GDP, and 43% of US imports come from Canada, Mexico, and China. This means that 5% of US GDP is directly impacted by higher tariffs on Canada, Mexico, and China. This is meaningful when annual GDP growth normally is 2%.
Big Difference Between Issuer-Weighted and Dollar-Weighted Default Rates
While headline default rates have ticked up in the last two years, they are primarily driven by distressed exchanges, see the first chart. The increase in dollar-weighted default rates has been less severe—those have, in fact, been trending lower recently—suggesting that a disproportionate number of small companies are facing stress, see the second chart.
The implication is that even as default rates have ticked up, credit losses suffered by high-yield and leveraged-loan investors remain pretty muted. However, with interest rates staying higher for longer, the increase in distressed exchanges could pressure future recoveries if the underlying issuer fundamentals remain stressed.
For more discussion, see our 2025 credit outlook here.
Fewer Unicorns Founded When Interest Rates Are Higher for Longer
The chart below shows that when interest rates are low, more unicorns are created because it is cheaper for startups to access capital, allowing them to scale faster and reach a billion-dollar valuation.
When interest rates are higher for longer, fewer unicorns are created because financing costs are more expensive, and it becomes more difficult for companies to expand.
This is not surprising. In fact, this is the entire idea from the Fed with raising interest rates: to make borrowing more expensive and slow economic activity.
The bottom line is that venture capital is unattractive in a higher-for-longer environment because startup firms are characterized by having no earnings, no revenues, and no cash flows, and, therefore, less ability to pay the debt-servicing costs that are associated with expanding the business.
In short, companies with low interest coverage ratios struggle when interest rates are higher for longer.
