AI Summary
5 min readMorgan Stanley economists Seth Carpenter and Mayong Fatki examine US tariffs, initially imposed to encourage reshoring of production. They find limited evidence that tariffs have boosted domestic manufacturing output, with increases driven mostly by higher prices rather than real volume gains. This analysis draws on recent data and legal shifts in tariff authorities.
Recent Tariff Trends and Legal Shifts
Effective US tariff rates have fallen steadily to 8.5% as of February, accelerating after a Supreme Court ruling on IIPA (International Emergency Economic Powers Act). This prompted a temporary shift to Section 122 authorities, set to expire on July 24. Fatki notes that durable tariffs will likely anchor in Sections 232 (national security) and 301 (unfair trade practices), maintaining an aggregate rate around 10%, similar to late 2025 levels.
New Section 301 investigations, announced in March, cover major trading partners and are moving faster than past efforts—comments due by April 15, hearings in early May, with completions expected over summer. Section 232 tariffs will roll out in waves by sector. While negotiations continue, tariffs remain a fixture, with macro implications for capital expenditure (CapEx), production, markets, and Federal Reserve policy.
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What you'll learn
- 1 (00:00) **Intro and Tariff Context** - Hosts introduce episode on tariffs amid shift from energy focus
- 2 (01:15) **Guest Introduction** - Mayank Fatki, key analyst on tariffs, trade, and reshoring
- 3 (01:30) **Recent Effective Tariff Rate** - US tariffs declined to 8.5% as of February
- 4 (01:58) **Legal Basis for Durable Tariffs** - Need Section 232 and 301 over IEEPA
- 5 (02:39) **Upcoming Tariff Investigations** - Two Section 301 probes on major partners announced in March
- 6 (03:11) **Tariffs Persist, Reshoring Question** - Aggregate rates stable, but industry impacts key for manufacturing and non-AI CapEx
- 7 (03:51) **Steel Industry Case Study** - Examines steel as compact supply chain to gauge tariff response
+ Full timestamped outline available in the app
Show Notes
Our Global Chief Economist and Head of Macro Research Seth Carpenter asks Mayank Phadke, a member of his team, to give up an update on tariffs and their real cost to the U.S. economy.
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----- Transcript -----
Seth Carpenter: Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's Global Chief Economist and Head of Macro Research. And I'm joined by Mayank Phadke, a member of my global economics team. And today we're going to talk about tariffs. I bet that was a surprise.
It is Thursday, April 23rd at 10am in New York.
I have to say, for the past couple of months, the focus on energy markets, energy supply, energy prices – that has dominated everything that we've been talking to clients about around the world. And so, everyone would be forgiven if they had forgotten that we were talking about tariffs much the same way, nonstop last year.
Now, tariffs kind of seem like an afterthought. But part of the stated motivation for tariffs when they were imposed was to boost reshoring. That is to have more production of goods in the United States that had been imported. So, tariffs still matter. They matter for CapEx, in that regard, they matter for domestic production. And because of all of that, presumably they matter for markets and for the Federal Reserve.
But for the narrow question of reshoring, the data so far, I would argue, suggests that there's been very little net effect. There will be more tariff news arriving in coming months. So Mayank, I am going to pull you into this conversation because you have been one of the key people on the team, doing of analysis on the data work on tariffs, trade and reshoring. So, could you tell us a little bit about what’s been happening to the effective tariff rate for the United States recently? And where we think that’s likely to go?
Mayank Phadke: Tariff levels have declined steadily in recent months, falling to 8.5 percent as of February, with the decline having accelerated after the Supreme Court ruling. The decision on IEEPA forced a shift in underlying tariff authorities with country level IEEPA tariffs temporarily reconstituted under Section 122.
We have long argued, even before the 2025 tariffs that the legal basis for durable tariffs would need to be anchored in section 232 and section 301 based authorities rather than in IEEPA. The current Section 122 tariffs are due to expire on the 24th of July. And after that, we expect more durable authorities to kick in. The shifts that we will see as IEEPA tariffs are replaced by new section 301 and 232 tariffs means that there will be some differences. But from a macro perspective, we expect the level to be roughly similar to where it stood at the end of 2025. An aggregat
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