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Trump 2.0 and the Latest on Tariffs

Trump 2.0 and the Latest on Tariffs

Thoughts on the Market vor 1 Jahr

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Our Global Head of Fixed Income Research & Public Policy
Strategy Michael Zezas discusses the potential economic outcomes
of a shifting North American trade policy.

----- Transcript -----

Welcome to Thoughts on the Market. I’m Michael Zezas, Morgan
Stanley’s Global Head of Fixed Income Research and Public Policy
Strategy. Today – the latest on tariffs and
potential outcomes of a shifting North American trade
policy.

It’s Wednesday, February 5, at 10am in New York.

In a series of last-minute phone calls on Monday, President Trump
reached a deal with Mexican President Claudia Sheinbaum and
Canadian Prime Minister Justin Trudeau. President Trump agreed to
delay the announced 25 percent tariffs on Mexico and Canada for a
month – citing their intention to do more on their borders
against migration and drug trafficking. But President Trump’s 10
percent tariffs on all Chinese products went into effect
yesterday morning. China responded promptly with its own
countermeasures, which are not expected to take effect until
Monday, February 10, leaving room for potential
negotiations.

These developments don’t come as a surprise. We had been assuming
– one – that Canada and Mexico could avoid tariffs by making
border concessions, which they did. And – two – that the US
would craft a tariff policy related to China independent from its
considerations around Mexico and Canada. If the underlying goal
is to transform its trade relationship with China, then the US
has an interest in preserving an alignment with Canada and
Mexico.

Given all of that, our base case of “fast announcements, slow
implementation” looks intact. We expect tariffs on China and some
products from Europe to ramp up through the end of the year,
putting downward pressure on economic growth into 2026.

If tariffs on Mexico and Canada are avoided or delayed further,
there would be no change to our broader economic outlook. The
U.S. dollar could weaken as it prices out some tariff risk.
Within U.S. equities, consumer discretionary as well as broader
cyclical stocks could lead.

If, however, we're wrong and tariffs do go up on Mexico and
Canada after this one-month pause, then we expect some rise in
inflation, growth to slow, and the U.S. dollar and Treasuries to
outperform equities; at least for a time as the U.S. gets to work
rewiring its global trade relationships.

Tariffs are likely to dominate news headlines in the days and
months to come. We'll keep tracking the topic and bring you
updates.

Thanks for listening. If you enjoy the show, please leave us a
review wherever you listen and share Thoughts on the Market with
a friend or colleague today.