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. We're recording this on Wednesday, June 12th at 9 a.m. Eastern.

Often we use this podcast to put the policy news of the day into context of financial markets.

And in recent weeks, that's been all trade policy news all the time.

Today, let's do something a bit different.

Let's take a step back from the trade news, and if it's going to lead this into recession.

Let's instead take a look at the long-term

trend of how global trade is changing.

We recently published an Insight's note to help equity investors think through this long-term

trend.

We call it the Slobilization playbook, borrowing a term from a Dutch academic.

In it, we cite a study by McKinsey detailing how the generational trend of globalization is starting to fade. Rather than seek the lowest labor and trade costs country for producing goods,

the expectation is that companies will begin to see incentives to near-shore production

toward home markets due the technological changes, the advent of just-in- time logistics, and the rising importance of services

over goods trade as emerging markets become wealthier. In our view, geopolitical tensions have

been aided by this dynamic and are accelerating it. The cost of protectionism is less in a world

where you're already incentivized to bring home a supply chain and a company's choice to do so is

accelerated when its home jurisdiction levies tariffs or other barriers that make that chain more expensive.

And it's the other barriers that we think might be underappreciated by markets because, in our view,

they're likely to hang around even if the US and China strike a deal to start lowering tariffs.

That's because both countries seek to be leaders in emerging technologies like AI and 5G

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