Morgan Stanley adds Amazon.com as Top Pick
Investing.com - Although worries around the impact of sweeping U.S. tariffs have recently appeared to ease into the background, complacency around the levies could lead to financial market volatility, according to analysts at Morgan Stanley.
When Trump first unveiled his aggressive import duties on a host of countries in early April, he sparked widespread turmoil in financial markets and fueled fears over a possible economic cratering.
Trump later moved to ease his stance on the matter, temporarily delaying some of the tariffs and securing a range of preliminary deals with major trading partners. Still, the effective rate of the levies is now well above where it was at the beginning of his second term in the White House in January.
Against this backdrop, the Morgan Stanley analysts led by Seth Carpenter said that client conversations have indicated that the tariffs have gone "from the only topic to mostly an afterthought" since April.
But uncertainty continues to cloud over the trajectory of Trump’s trade policy, especially after a U.S. court ruled in August that his use of emergency executive powers to impose some of the tariffs was illegal. Trump has now taken the fight to the Supreme Court, with officials in his administration saying that a loss in the high court could "thrust America back to the brink of economic catastrophe."
The Morgan Stanley analysts argued that legal questions would likely drive a shift in the tariffs over time from being more focused on individual countries to specific sectors.
"[C]ountry-level tariffs are quick to implement, but as has been shown, subject to question. Sector-specific tariffs are on more firm legal grounding, but tend to take longer to implement," the analysts wrote.
A lack of "clarity" around framework U.S. trade deals could mean that they are subject to change should the legal challenges to the tariffs prove successful, the strategists said.
Meanwhile, despite the "somewhat slower implementation" of the tariffs having so far restrained price increases, volatility in inflation and growth data could also pick up, the analysts argued. Global supply chains, at the same time, have been restructuring, spurred on partly by the tariffs and pre-existing trends, they added.
"Tariffs are not moving markets like they were months ago, but their effects on the macroeconomics globally are just beginning. We suspect markets may have to reengage with tariffs in the coming months as reality hits policy in implementation," the analysts said.