Morgan Stanley(US:MS)2025-07-15 01:58Investment Rating - The report indicates a tactical escalation in tariffs, with the overall effective tariff rate expected to rise to 21-22%, which may lead to stagflationary shocks and increased recession probabilities [57]. Core Insights - Tariffs are being used as a tool for negotiation, with the US administration focused on reducing goods trade deficits while not perceiving substantial risks from tariff escalations [57]. - The weighted average tariff rate on Asia could rise to 27% and above, but it is anticipated that most large economies in Asia will reach trade agreements before August 1 [57][11]. - The implications for the copper market are significant, with a 50% tariff on copper expected to negatively impact LME copper while benefiting COMEX copper [57][27]. - The US economy may experience a stagflationary shock due to the announced tariffs, with inflation expected to remain above 2% for an extended period [57]. Summary by Sections Tariff Implications - The report highlights that the US is exploring its negotiating space through tactical tariff escalations, with current levels remaining below earlier fears [57]. - The potential for tariffs to rise on select sectors, particularly semiconductors and pharmaceuticals, remains a concern [16][57]. Trade Negotiations - Current trade negotiations involve several countries, with key issues such as agricultural access and tariff reductions on automobiles still unresolved [15][57]. - The report suggests that if agreements are not reached by the deadline, tactical tariff increases may occur, impacting trade dynamics [16][57]. Economic Outlook - The report anticipates a slowdown in capital goods imports and exports over the next 2-3 months, indicating potential economic drag [17]. - The report emphasizes the importance of monitoring Asia's export price index for signs of tariff burden sharing and its effect on corporate profit margins [19][57].