Welcome to Thoughts on the market. I'm Michael Zezes, head of Public Policy and Municipal Strategy for Morgan Stanley.

Along with my colleagues bringing you a variety of perspectives, I'll be talking about the intersection between U.S. public policy and

financial markets. It's Wednesday, August 7th at 9 a.m. Eastern.

Last week we previewed the U.S. and China's trade negotiation meeting and attempt to find a deal

and stave off further tariffs.

How did it go?

The U.S. announced a fresh round of tariffs would be coming in September.

China responded on Monday by announcing its state-run enterprises would cease buying U.S. agricultural products, and the U.S. responded later in the day by formally labeling China a currency manipulator.

So it would seem the meeting didn't quite go so well.

So what do you need to know?

First, we don't think investors should expect a quick resolution.

When both sides agreed last month at the G20 to pause further trade escalations,

it seemed to some that they might be able to bridge the gap on key sticking points that had divided them for months.

A return to tariffs last week suggests that no such progress has been made, and in fact they may be farther apart than they were when the deal broke down back in May.

On top of that, there are incentives for both sides to than they were when the deal broke down back in May.

On top of that, there are incentives for both sides to hold their ground.

In the U.S. the administration may feel encouraged that the Fed has signaled its willing to cut rates

further to help the economy if trade tensions keep rising.

In China, leaders may want to play for time since the U.S. demands call for structural changes

they may not want to make.

So investors have to deal with the impact of lasting tariffs.

And that brings us to our second point.

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