By Michael Zezas, Global Head of Fixed Income and Thematic Research at Morgan Stanley
Last week saw the passage of the fiscal bill. Whatever you think of the ultimate impact of the legislation to be enacted (see our key views here and here), some meaningful uncertainty is now resolved within the four policy factors we defined as critical to the outlook across markets this year: fiscal, trade, immigration, and regulation. The particulars and direction of US trade policy, on the other hand, remain in flux.
And this Wednesday, the 90-day pause on reciprocal tariffs – initiated on April 9 – expires. Our base case? Effective US tariff levels rise only modestly, but with some new noise. While many US trading partners could see a deadline extension for further negotiation, this may not be a uniform approach. The administration could relax some tariff levels given sufficient progress in bilateral talks, or conversely communicate that tariff increases are coming on other trading partners (per the president’s own comments earlier this week and the recently announced arrangement with Vietnam).
