It's not too often that 94-year-old Warren Buffett comments on political matters. After all, doing so is unlikely to create shareholder value for Buffett's company Berkshire Hathaway (BRK.A 0.47%)(BRK.B +0.34%). However, any time Buffett has something to say on the state of markets, the economy, or politics, you know the world will be listening because Buffett is one of the most influential investors of all time.
Additionally, because he has been investing for well over six decades and has been through multiple market cycles, Buffett has seen it all. Recently, during a rare interview with the CBS News show Sunday Morning, Buffett made his feelings about tariffs known, and he didn't hold back. Buffett issued a stark warning to President Donald Trump on the impact of tariffs that couldn't be any clearer.
Buffett calls tariffs "an act of war..."
The Trump administration last week removed a temporary pause on an earlier declaration and implemented 25% tariffs on Canadian and Mexican imports and an additional 10% tariff on Chinese imports (there was already a 10% tariff in place), starting a trade war that has resulted in retaliatory tariffs by those three countries. However, shortly after implementing the tariffs, Trump on March 6 once again paused Canadian and Mexican tariffs on imports covered under the United States-Mexico-Canada Free Trade Agreement.
Trump has now gone back and forth on tariffs multiple times, confusing investors on whether he plans to use them as a temporary bargaining chip in his deal-making efforts or actually follow through with the measures for a sustained period of time. The market has struggled to price in this uncertainty. In his recent interview, Buffett briefly touched on tariffs and called them "an act of war to some degree," saying that the U.S. has had a lot of experience with tariffs and that over time they become a tax on goods. "I mean the tooth fairy doesn't pay them," he said.
Image source: Motley Fool.
Buffett also said that prices will be higher 10 years from now and 30 years from now, although this may have simply been a reference to the fact that consumer prices tend to rise over time due to inflation. While Buffett didn't mention Trump by name and avoided questions about Trump's bringing Elon Musk into his administration, his words could not have been more clear about tariffs and their impact on consumer prices.
Americans have felt the impact of higher prices on their pocketbooks in recent years as inflation surged during the COVID-19 pandemic and has only recently gotten back to more normal levels. Trump made campaign promises to bring down consumer prices once he took office and some in his administration (including Trump) have said that tariffs will not lead to higher prices. However, U.S. Treasury Secretary Scott Bessent recently said that "access to cheap goods is not the essence of the American dream," while Trump himself has acknowledged that there could be some near-term economic pain related to his actions.
Trump has also seemed reluctant to implement tariffs, delaying tariffs on Mexico and Canada on multiple occasions now, making it somewhat unclear what he hopes to achieve with his actions.
Confirming suspicions about Berkshire's inactivity
Berkshire Hathaway kept its investment activity surprisingly low in 2024. While the markets showed enthusiasm for all things artificial intelligence and helped push the S&P 500 to new highs on close to 60 occasions during the year, Berkshire sold off many more stocks than it bought and didn't repurchase as much of its own stock compared to years past, and it stockpiled a staggering amount of cash. Many suspected Buffett and Berkshire, which have been quite good at getting to the sidelines before market downturns, were sending investors a warning.
Buffett and Berkshire also remained disciplined during election time. They once again bought very few stocks in the fourth quarter and didn't try to time the election trade. Stocks melted up but then quickly gave back those gains, as investors grew concerned about weakening consumer sentiment and the impact of tariffs.
Nobody needs to guess how Buffett feels about tariffs now. The Oracle of Omaha just made it clear that he thinks what Trump is doing could lead to higher consumer prices and therefore higher inflation, especially if the tariffs and trade war are sustained.
