As the economy experiences a period of volatility in the wake of Trump’s oscillating tariff policies, many investors have sought the opinion of Warren Buffett. While the famed investor has refrained from commenting on the issue until Berkshire Hathaway’s annual meeting set for early May, he has expressed his opinion in the past.
A staunch supporter of the free market, Buffett has certainly made it clear that tariffs are not something he views as beneficial to the economy. Historically, they have distorted global marketplaces, and do not appear to be worth it in the long term. However, Buffett has also expressed concerns surrounding the United States’ trade deficit, which tariffs attempt to resolve—a dichotomy not easily untangled.
Tariffs Worsen International Relations and Harm Consumers
Beginning with his perspective on tariffs, Buffett has been nothing if not straightforward. Shortly after Trump’s tariff plans were first rolled out in February, Buffett called the decision “an act of war, to some degree.” He further noted that the tariffs implemented would essentially be a tax on all U.S. consumers. As he so succinctly put it, “the tooth fairy doesn’t pay ‘em!”
Buffett has made his opinion on tariffs clear as far back as the first Trump administration, where he argued that a U.S.-China trade war would only be detrimental to the parties involved, not to mention the rest of the global economy.
Concerns Surrounding the U.S. Trade Deficit Are Not Unfounded
While Buffett’s opinions on tariffs are plain to see, his concern surrounding the U.S. trade deficit has been evidenced for over two decades. In 2003, Buffett revealed that he had placed a portion of Berkshire Hathaway’s cash holdings into foreign currencies, explaining his concerns about the U.S. deficit and potential dollar decline.
In 2003, Buffett estimated that the U.S. had a trade deficit of 4% of its GDP. He further suggested that the rest of the world owned 5% of the nation’s wealth. While GDP growth can outpace foreign ownership, it’s hard to keep up.
Buffett’s Proposed Solution
Recognizing the destructive potential of broadly applied tariffs alongside the legitimate issue of a growing trade deficit, Buffett developed a possible solution. Buffett calls his solution “import certificates,” or “ICs,” a market-based corrective trade tool.
ICs would be earned when a U.S. producer sold goods, and these certificates could be sold or traded to either foreign exporters or domestic importers, which would allow the same amount of goods to be imported into the U.S. Theoretically, this would create an even trade balance. However, U.S. exporters may receive extra money from selling ICs, serving as a kind of subsidy.
“My remedy may sound gimmicky, and in truth is a tariff called by another name,” Buffett said of his concept. “But this is a tariff that retains most free-market virtues, neither protecting specific industries nor punishing specific countries nor encouraging trade wars. The plan would increase our exports and might well lead to increased overall world trade.”
