Economists are struggling with President Donald Trump's boleo of escalation and de-escalation of erratic tariff policies, according to Morgan Stanley.

The investment bank said these sudden policy shifts, particularly those targeting China, make calculating trade elasticities “near impossible” while increasing recession risks as businesses delay critical investments.

“Greater policy uncertainty increases the risks of a business shutdown,” said Seth B. Carpenter, chief global economist at Morgan Stanley.

In a note, Morgan Stanley analysts noted that a complex dual tariff structure further complicates predictions, with sector-specific measures under Sections 201, 232, and 301 overlapping broader country-level tariffs authorized by IEEPA.

Analysts said that sector-level tariffs may take precedence due to their different legal frameworks, creating what they termed a “predicament for businesses.”

“Clear as mud?” Carpenter quipped, referring to situations where goods exempted from reciprocal tariffs could suddenly face Section 232 duties if investigations conclude within the mandated 360-day timeframe.

In addition, the interaction between different tariff types could result in lower effective rates for some exporters while exposing others to higher costs, according to the investment bank.

Analysts emphasized that the final tariff allocations — crucial for accurate growth and inflation forecasts — will only be measurable as they unfold in real time.

“Defining the final adjustment…will only be possible in real time,” Carpenter said, adding that fiscal, immigration, and other policies further compound the already significant uncertainty.

Finding market equilibrium has become increasingly difficult. “We are all looking for profits, but sometimes there may be none to be had,” Carpenter said, concluding that attempts to isolate tariff impacts amid overlapping policy collisions would be futile, leaving both economists and markets bracing for continued surprises.

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