The US tariff big stick is about to fall! Morgan Stanley warns: Uncertainty clouds these industries in the forefront.

Morgan Stanley recently released a research report analyzing the market impact of the US tariffs announcement on April 2nd. Morgan Stanley believes that the equivalent tariffs to be announced this week may be the starting point for further negotiations, rather than the final result. This means that the uncertainty of policies and economic growth risks may continue. In terms of market response, Morgan Stanley believes that in the baseline scenario, US tariffs will not hinder the rise of the S&P 500 index, as the "tariff exemption" for Mexico and Canada will help offset some of the risks of moderate adjustments in Chinese tariffs. Additionally, tariffs on products from the EU and certain Asian economies may have a greater impact on specific industries. However, even if the tariff results on April 2 are milder than the baseline scenario, the S&P 500 index may still be limited to the range of 5800-5900 points in the short term. To drive the S&P 500 index closer to the upper limit of Morgan Stanley's forecast range for the first half of the year (6100 points), a more moderate tariff result and a noticeable acceleration in earnings revisions are needed, which Morgan Stanley has not seen yet. On the other hand, to test the lower limit of Morgan Stanley's forecast range for the first half of the year (5500 points), a harsher tariff result on April 2, such as a tariff increase of over 10% on China, an expansion of tariffs on the EU (not just product-specific tariffs), expiration of the US-Mexico-Canada trade agreement exemption, and more extensive national tariffs on countries like Vietnam, Japan, South Korea, and India are needed. Which industries are facing impacts? Morgan Stanley also analyzed the tariff risks faced by certain industries. In the automotive industry, potential tariffs on cars/parts from Mexico and Canada could further escalate car prices beyond the affordability of US consumers, weakening demand. In the US automotive market, 17% of cars are imported from Mexico and 6% from Canada. General Motors Company (GM.US) and Ford Motor Company (F.US) have 26% and 17% of their cars produced in Mexico, respectively. Considering the potential profit pressures directly from tariffs and cost increases from shifting towards US domestic production, Morgan Stanley continues to be cautious on traditional car manufacturers. In the medical technology sector, Morgan Stanley believes that the overall impact of tariffs on the industry is limited, with earnings per share facing approximately a 1-3% negative impact. Companies with strong pricing power, such as Intuitive Surgical, Inc. (ISRG.US) and Becton, Dickinson and Company (BDX.US) can better withstand tariff pressures. In the industrial sector, as earnings revisions for industrial stocks have turned significantly negative, Morgan Stanley lowered its rating from "hold" to "neutral" for this sector and advised investors to take profits. However, in the long term, reshoring of manufacturing is a significant and positive factor for US industrial stocks. Eaton Corp. Plc (ETN.US) and Rockwell Automation, Inc. (ROK.US) are Morgan Stanley's preferred stocks in this theme, with other major beneficiaries including Hubbell Incorporated (HUBB.US), Fastenal Company (FAST.US), Fortive (FTV.US), and Trane Technologies (TT.US). In soft goods retail and branding, the Trump administration's high attention to trade deficits means that Vietnam may become another major tariff barrier for clothing and footwear companies. Vietnam is the largest importer of shoes and the second largest importer of clothing in the US. In Morgan Stanley's view, the possibility of tariffs on Vietnam is not the focus of the market's attention, so the potential impact has not been fully digested by the market. Companies with significant exposure to Vietnam such as Allbirds (BIRD.US), NIKE, Inc. Class B (NKE.US), On Running (ONON.US), and Skechers U.S.A., Inc. Class A (SKX.US) may face the greatest tariff risks, while companies with smaller exposure to Vietnam like Bath & Body Works (BBWI.US) and Levi Strauss & Co. Class A (LEVI.US) may experience relatively smaller impacts. In the tech hardware sector, despite efforts to diversify supply chains, most hardware production still occurs in China. Imposing a 10% tariff on Chinese imports could result in a 2.5% adverse impact on earnings per share for US IT hardware companies, with original equipment manufacturers facing a potentially greater hit.