Markets

'There's no credible path at the moment' for tariffs ending, Morgan Stanley strategist says

Key Points
  • A top Morgan Stanley strategist says "there is no credible path at the moment" for the tariffs between China and the U.S. being removed despite the countries agreeing to a trade war truce over the weekend.
  • "We didn't learn what progress was made, if any, on the key issues that were dividing both sides ahead of the May 5 re-escalation," says Michael Zezas, head of U.S. public policy strategy at Morgan Stanley
VIDEO2:0202:02
Downside risks to economy and market remain: Morgan Stanley

A top Morgan Stanley strategist said Tuesday that "there is no credible path at the moment" for the tariffs between China and the United States being removed despite the countries agreeing to a trade war truce over the weekend.

Speaking on CNBC's "The Exchange," Michael Zezas, head of U.S. public policy strategy at Morgan Stanley, said there is no reason to think that the most recent pause in the trade war will end differently than previous ones.

"It's good news that both sides are back to talking, but I think what's more important is the things that we didn't learn as a consequence of the G-20," Zezas said. "We didn't learn what progress was made, if any, on the key issues that were dividing both sides ahead of the May 5 re-escalation."

The U.S. and China agreed to reopen negotiations and hold off on raising tariffs at the G-20 summit in Japan. The two countries traded increased tariffs in May, and currently China imposes tariffs to up to 25% on $60 billion of U.S. goods, while the Trump administration levies tariffs of 25% on $250 billion of Chinese products. Before the summit, President Donald Trump had been threatening to expand the tariffs to an additional $300 billion of goods.

Trump said Monday that talks with China about the tariffs have already begun. The U.S. also this week proposed tariffs on an additional $4 billion of European goods this week.

Zezas also said he believes that the markets have not priced in the impact of the existing tariffs.

"We are already at a point where S&P 500 earnings are in a recession," he said. "We think this can further weigh on it because now that you don't have the existing tariffs rolling off any time soon, there have to be investments made in supply chain management and other types of cap-ex to deal with that."

Zezas added that he expects GDP growth in 2020 to be 1.7% and also anticipates a rate cut from the Federal Reserve in July. His GDP forecast is in line with the Congressional Budget Office's projection of 1.7% for 2020 and below the Trump administration's forecast of roughly 3%.