Episode summary
The Hidden Toll of Tariffs
Thoughts on the Market (Morgan Stanley)
· · 7 min · Hosts: Seth Carpenter · Guests: Mayank Phadke
Summary
Tariffs have not disappeared from the macro backdrop even if they have faded from the market conversation. The host says the stated goal was reshoring, but the evidence so far suggests little net effect on overall domestic production, while tariffs still matter for capex, domestic supply, markets, and the Federal Reserve.
Mayank Phadke says the effective U.S. tariff rate has fallen to 8 1/2% as of February, then should move back toward an aggregate effective rate of around 10% as temporary section 122 tariffs expire on July 24 and more durable section 301 and 232 authorities take over. He expects completed section 301 investigations over the summer, with section 232 tariffs arriving in waves as sector reviews proceed.
On reshoring, the steel industry shows the clearest tariff response: domestic production rose as imports fell, but total domestic supply did not rise, and U.S. steel prices diverged materially from global peers. Across industries, Mayank Phadke says the increase in domestic production has been largely nominal, with very little of it reflecting higher real output, implying tariffs have raised costs more than they have expanded productive capacity.
Key takeaways
- Mayank Phadke says the U.S. effective tariff rate fell to 8 1/2% as of February and should settle near 10% as new authorities replace temporary measures.
- The guest expects section 301 investigations to finish over the summer, while section 232 tariffs will arrive in waves.
- Steel shows some reshoring in imports and domestic output, but total domestic supply did not rise and U.S. prices moved above global peers.
- Across industries, Mayank Phadke says the domestic production increase is mostly nominal, not real, so the output boost is limited.
- The host argues the data point more clearly to higher costs for the U.S. economy than to a broad reshoring boom.
Notable quotes
“Tariff levels have declined steadily in recent months, falling to 8 1/2% as of February”
“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”
“we expect the level to be roughly similar to where it stood at the end of 2025 an aggregate effective rate of around 10%”
“when we look at the total supply of steel to the domestic economy it hasn't risen”
“the increase in domestic production has come largely in nominal terms”
How the episode opens
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 Mayang Fatkkey, a member of my global economics team, and today we're going to talk about tariffs. I bet that was a surprise.
It's Thursday, April 23rd at 10:00 a.m. 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 non-stop 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, suggest that there's been very little net effect, there will be more tariff news arriving in coming months. So May, I'm going to pull you into this conversation because you have been one of the key people on the team doing a lot of the analysis and 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?
Tariff levels have declined steadily in recent months, falling to 8 1/2% as of February, with the decline having accelerated after the Supreme Court ruling.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- tariffs
- u.s. economy
- economic cost
- macro research
Watch the episode
Watch “The Hidden Toll of Tariffs” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
More from Thoughts on the Market (Morgan Stanley)
Thoughts on the Market (Morgan Stanley), this episode and its artwork belong to Morgan Stanley. Octagon is not affiliated with the show; this page is an independent summary.
