Trade War Uncertainty to Slow U.S. Economy, Morgan Asset Management Warns

Morgan Asset Management has expressed that the uncertainty surrounding the trade war is likely to slow down the U.S. economy in the second half of this year. However, the implementation of the "Big and Beautiful" law is expected to provide some support to the U.S. economy. The firm believes that the inflation caused by tariffs is only temporary and will gradually return to the Federal Reserve's 2% target by the end of next year.

Morgan Asset Management's global market strategist, Zhou Luntong, noted that last week's trade agreement between the U.S. and Vietnam has provided businesses with greater certainty in planning their operations. However, she cautioned investors to focus on industry-specific tariffs, such as those on pharmaceuticals from the European Union, and automobiles from Japan and South Korea, as these could persist even after the potential second term of President Trump.

The deadline for the U.S. to grant equal tariff exemptions to trading partners other than China is set to expire on Wednesday, and the trade war is expected to intensify, especially since President Trump has indicated that he has no intention of extending the deadline. However, Zhou Luntong believes that the risk has been delayed for about half a month, as the unilateral tariff rates announced by Trump will only take effect from August 1. She expects that in the coming weeks, there will be extensive discussions on trade agreements with specific countries.

Zhou Luntong believes that the fiscal expansion and regulatory relaxation under the "Big and Beautiful" law will take effect later this year and continue to drive U.S. economic growth into next year, providing a positive catalyst for the stock market. Recently, funds have been flowing into markets outside the U.S., not so much because the law is seen as potentially harming fiscal health in the long run, but more due to the risks associated with trade negotiations, the weakening of the dollar, and the fading of the "American exceptionalism" narrative, which no longer views the U.S. economy as uniquely strong.

Regarding whether to continue investing in artificial intelligence (AI) concept stocks, Zhou Luntong pointed out that the AI sector has performed strongly recently, reflecting the market's growing recognition that the increasing prevalence of AI will significantly enhance efficiency, thereby curbing prices and stimulating consumption. Large tech companies will continue to lead AI innovation, but investment opportunities are gradually shifting towards companies that can effectively apply AI. As AI is increasingly adopted across various industries, including finance, manufacturing, and healthcare, it is transitioning from a standalone theme to a means of enhancing corporate performance. The effectiveness of AI utilization will determine a company's competitive edge.

Given the current policy and geopolitical uncertainties, Zhou Luntong advises investors to diversify their portfolios across different markets and industries. Chinese stocks continue to play an important role in global asset allocation. The Chinese government's efforts to relax regulations, enhance transparency in anti-monopoly and merger frameworks, and boost private sector confidence, along with technological breakthroughs and the success of domestic animated films, are all positive indicators. She believes that potential policy stimulus from the central government, along with advancements in AI technology, will support the performance of tech stocks in the short term and benefit a broader range of economic sectors in the long term. She remains optimistic about state-owned enterprises that focus on shareholder returns and good governance.