By Michael Zezas, Morgan Stanley global head of fixed income research
Tariff tactics matter, but don’t let them distract you from the larger strategic theme. Investors spent much of last week gripped by the “will he, won’t he” of whether President Trump would follow through with new tariffs. Friday’s news reintroduced the possibility of reciprocal tariffs, which he said would be announced next week. Earlier in the week, the US increased tariffs on China though tariffs on Mexico and Canada were avoided, at least for now. So far it’s lining up with our expectation for the US tariff path coming into the year: Tariffs on China and on key products out of Europe would go up gradually, consistent with US policy focused on supply chain security and reducing trade deficits. But it would be naive to deny that many paths from here, both more benign and severe, are possible.
Getting the timing and focus of tariffs right can help investors navigate the near term. As our colleagues in economics, Seth Carpenter and Michael Gapen, have consistently noted, the tariff trajectory shapes the expected path for growth, inflation, and hence monetary policy. And as our colleagues in macro strategy point out, it can influence tactical, short-term views about the direction of the US dollar and US Treasury yields.
