Trump’s tariff truce didn’t take the sting out of ’elevated’ recession risk: MS

Published 16/04/2025, 21:58
© Reuters

Investing.com -- President Donald Trump’s temporary pause on tariffs drew a chorus of cheers across markets, but not much has changed since the ’Liberation Day’ reciprocal tariffs wreaked havoc, keeping the risk of recession front and center, Morgan Stanley (NYSE:MS) warned in a recent note.

"The revised plan lowers the effective blended tariff rate from around 22% to 17%, but that’s still a dramatic rise from the current rate of 3% – an increase that’s likely to weigh on economic growth, corporate margins and consumer behavior," Morgan Stanley said in a recent note.

Last week, Trump sent markets soaring after announcing a 90-day pause on reciprocal tariffs, and lowering tariffs on trading partners who hadn’t retaliated against the ’Liberation Day’ Apr. 2 tariffs to 10%.

China, however, wasn’t offered reprieve. Instead, the Trump administration decided to escalate its trade war with Beijing—a move that could likely prove economically costly"

" Independent (LON:IOG) analysts at Pantheon Macroeconomics estimate that China’s roughly 7% share of U.S. exports will likely decline to zero, potentially shaving around 35 basis points from U.S. GDP growth," Morgan Stanley said.

The Trump administration has touted an expansionary fiscal plan including tax cuts to support the economy, but the surge in the Treasury market indicates that there will be higher borrowing costs that could narrow the scope to roll out fiscal support.

"With the U.S. budget deficit already outsized, higher rates and, thus, higher interest expenses may limit what Washington can do in the federal budget. That likely includes how ambitious U.S. lawmakers can afford to be with proposed tax cuts," Morgan Stanley said.

Against the backdrop of ongoing tariff uncertainty, which suggests volatility will likely persist, Morgan Stanley recommends increasing holdings in short-term fixed income and real assets. 

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers
© 2007-2025 - Fusion Media Limited. All Rights Reserved.