President Donald Trump's recent delay in implementing a new wave of US tariffs may offer a temporary reprieve, but it is unlikely to alter the broader financial outlook, analysts at Morgan Stanley warn. The move to postpone a series of aggressive trade tariffs on several countries changes little for investors. Uncertainty still swirls around the trajectory of the White House's trade plans, they argue.
Currency strategists at Morgan Stanley believe that while the 90-day delay "opens the door" for talks with US trade partners, it does little to calm markets. This move "merely extends policy uncertainty."
"History suggests that elevated and prolonged uncertainty that weighs on business confidence can have detrimental effects on business spending and hiring," the analysts added.
Following the tariff pause, the effective US tariff rate now stands at 23%, the highest level in more than a century, according to the bank's estimates.
Morgan Stanley warns that Trump's decision to impose a 145% tariff on Chinese goods, coupled with a symmetrical response from Beijing, could lead to a "sudden stop in trade flows."
On April 11, China announced it would raise import tariffs on US goods to 125% in retaliation for Trump’s latest tariff hike. The move marks further escalation in the intensifying trade war between the two countries.
Against this backdrop, Morgan Stanley reaffirmed its forecast for modest economic growth and rising inflation in the United States this year. The bank also expects the Federal Reserve to keep interest rates unchanged through 2025.
