Mar 5, 2025
Warren Buffett, one of the most respected voices in finance, is known for his straightforward approach to economic policies. So when he recently used the word “war” when discussing tariffs, people took notice.
In a recent interview with CBS News, the Berkshire Hathaway chairman called tariffs "an act of war, to some degree."
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These were first public remarks from the “Oracle of Omaha” on President Donald Trump’s trade policies. Trump announced sweeping 25% tariffs on imports from Mexico and Canada that went into effect on March 4, 2025. Various countries, including Canada, promised to retaliate.
“Over time, [tariffs] are a tax on goods. I mean, the tooth fairy doesn’t pay ’em!” Buffett said with a laugh. “And then what? You always have to ask that question in economics. You always say, ‘And then what?'"
Buffett’s insight carries significant weight given the decades of analysis he’s completed on market behaviours. Buffett's words highlight the economic consequences of trade barriers and the broader implications of protectionist policies.
Understanding Buffett’s perspective on tariffs
Buffett’s assertion that tariffs function as an act of war is rooted in the economic history of trade disputes. Tariffs are, at their core, financial penalties imposed on imported goods. While governments argue that they protect domestic industries, they often lead to retaliatory measures from other nations. This tit-for-tat escalation can strain international relationships, disrupt global supply chains, and even trigger economic downturns.
For consumers, disruption in supply chains, alone, can lead to inflationary pressures and higher living costs. As such, the Oracle of Omaha emphasized that tariffs are ultimately a tax on goods.
"The tooth fairy doesn’t pay ‘em!"
This assertion by Buffett underscores a fundamental economic truth: tariffs raise the cost of imported goods, and those costs are invariably passed down to consumers.
While policymakers may introduce tariffs with the intention of boosting domestic production, the reality is many businesses also respond — increasing prices or shifting supply chains, resulting in higher costs for the average consumer.
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Tariffs as economic warfare (hint: The Great Depression)
The concept of tariffs as an act of war is not new. Historically, nations have used trade restrictions as a tool to exert political and economic pressure on rivals. The Smoot-Hawley Tariff Act of 1930, for instance, significantly worsened the Great Depression by prompting global trade partners to impose counter-tariffs, shrinking international commerce. More recently, trade disputes between the United States and China during the first Trump administration led to billions of dollars in lost revenue for American farmers and manufacturers.
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This is the history Buffett draws from when he comments on tariffs being an “act of war” — the policy serves as a form of economic aggression. Instead of military confrontation, countries engage in financial battles that can destabilize industries and economies.
Impact of trade wars: Cost of protectionism
Trade wars may not result in immediate physical destruction, but they can erode economic stability and global cooperation, creating long-term consequences for businesses and consumers, alike. This can lead to higher costs, lower wages and, overall, make it tougher for those not part of the 1% economic elite.
Unintended consequences of protectionism: Dramatic impact on everyday workers
Buffett’s warning about tariffs is particularly relevant in an era where globalization has interconnected economies. While protectionist policies may seem like a solution to job losses or trade imbalances, they often lead to unintended economic consequences, such as:
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Higher Prices for Consumers: As Buffett pointed out, the burden of tariffs falls on consumers, not foreign producers. When tariffs are imposed, businesses facing increased costs pass them on to customers, leading to inflationary pressure.
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Retaliatory Measures: Other countries respond to tariffs with their own trade restrictions, which can hurt domestic exporters. This was evident in the US-China trade war, where American farmers and manufacturers suffered losses due to Chinese retaliatory tariffs.
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Disrupted Supply Chains: Modern economies rely on global supply chains. Imposing tariffs can force businesses to restructure their operations, leading to inefficiencies, layoffs, and production delays.
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Reduced Economic Growth: When trade slows down due to restrictive policies, economic growth can stagnate. Buffett’s concern about tariffs is tied to their potential to stifle economic expansion and investment.
Read more: The ultra-rich are bailing on volatile stocks right now — these 4 shockproof assets are their new safe havens
What can investors do?
Over the years, Buffett has expressed skepticism about tariffs and trade wars, citing the potential harm of these economic policies to long-term economic stability. In the past, Buffett adopted cash-heavy positions. He's taken the same approach in recent months. The action is a response to the market volatility introduced by unpredictable trade policies and the uncertain reaction by businesses, consumers and investors.
For investors in 2025, this is a good time to review your investment strategy and confirm that your portfolio is aligned with your goals and your risk tolerance.
Sources
1. CBS News: Warren Buffett on legendary Washington Post publisher Katharine Graham (March 2, 2025)
2. Reuters: Trump triggers trade war, price hikes with tariffs on Canada, China and Mexico (March 4, 2025)
3. Wall Street Journal: Does Warren Buffett Know Something That We Don’t? (Nov 11, 2024)
4. CNBC: Warren Buffett amasses more cash and sells more stock, but doesn’t explain why in annual letter (Feb 22, 2025)
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Romana King is the Senior Editor at Money.ca. She writes for various publications, and her book -- House Poor No More: 9 Steps That Grow the Value of Your Home and Net Worth -- continues to be an Amazon bestseller. Since its publication in November 2021, this book has won five awards, including the New York CPA Society's Excellence in Financial Journalism (EFJ) Book Award in 2022.
