Morgan Stanley: A US Recession That Drags The Global Economy Down Is Increasingly A Realistic Bear Case

By Vishwanath Tirupattur, global head of Quantitative Research at Morgan Stanley

Reciprocal tariffs announced Wednesday took the effective US tariff rate above levels last seen a century ago, fueling a dramatic global sell-off in risk assets amid growing concerns about a significant economic downturn. Europe is likely to respond with countervailing tariffs on US goods of a similar magnitude, as it has to tariffs on aluminum and steel. Our Europe economists note that European policymakers could go beyond such countermeasures and bring services trade into focus – where the EU runs a large deficit with the US. On Friday, China announced that it would impose a 34% tariff on all imports from the US.