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

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

It's Wednesday, December 11th at 9 a.m. Eastern.

On December 15th, this coming Monday, the U.S. is scheduled to levy tariffs on the remaining

imports from China that so far have not been caught up in the trade dispute.

Reports that these tariffs may be delayed may seem a reprieve for investors, but there's two things we think investors need to know as they track this tariff event.

First, what's at stake if these tariffs do eventually go on?

According to our economists, another round of tariffs, if sustained, would be consistent

with a recession, albeit a shallow one, starting in the second quarter of next year

as falling corporate confidence could finally spill over into weaker demand for labor.

But while an eventual deal to avoid these tariffs and a recession

would be an obvious positive for the economy in the short term,

we don't think it's likely to send a clear signal to markets that trade tensions are over.

That brings us to our second point.

Two months ago, the US and China announced that they had come to a phase one deal.

Since then, the news has been mixed on whether or not the deal could be finalized.

Issues in dispute appear to be tariff concessions, the level of agricultural purchases by China, and how a deal can be enforced.

A delay of December 15th tariffs underscores the lack of progress on these points.

And it's a pretty long list of items with all the hard stuff to be saved for a future phase 2.

So the path to a deal is likely a narrow one, and the key takeaway for us is that any deal is likely

to keep current tariffs in place as more difficult phase two negotiations can stall.

This keeps the risk of re-escalation of tariffs in 2020.

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