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Investing.com - U.S. President Donald Trump's decision to delay most of his punishing tariffs on countries around the world presents "some good news" for investors, but uncertainty still swirls around the trajectory of the White House's plans, according to analysts at Morgan Stanley (NYSE:MS).
In a note to clients, the analysts led by Michael T Gapen said that while the president's 90-day postponement of the levies "opens the door" for negotiations between the U.S. and its many of its trading partners, it "merely extends policy uncertainty."
Following the temporary halt to the duties, the U.S.'s effective tariff rate now stands at 23%, the analysts added, noting that this "the highest it has been in a century."
"While any delay of tariffs is beneficial on the margin, it is not the same as their removal. History suggests that elevated and prolonged uncertainty that weighs on business confidence can have detrimental effects on business spending and hiring," the analysts said.
Meanwhile, Trump's move to slap 145% tariffs on China -- the world's second-largest economy -- and incur a reciprocal levy from Beijing risks "a sudden stop in trade flows," the analysts flagged.
On Friday, China announced that it will raise its import tariffs on U.S. goods to 125% in retaliation to a recent hike in levies imposed by Trump.
The duty is an increase from 84% announced by Beijing on Wednesday, and is the latest escalation in an intensifying trade war between the U.S. and China. It will take effect from Saturday, Beijing said.
Against this backdrop, the Morgan Stanley analysts reiterated their outlook for "sluggish growth" and "firming inflation" in the U.S. in 2025. They also predicted that the Federal Reserve would leave interest rates on hold this year.