Buffett’s comments reveal US tariffs’ negative impact on its own economy
Illustration: Liu Xidan/GT
Well-known US investor Warren Buffett made a rare comment on tariffs, suggesting they could trigger inflation and hurt consumers, CNBC reported on Sunday, summarizing Buffett’s interview with CBS News for a new documentary. This once again drew public attention to the negative economic effects of US’ tariffs.
In response to the question “how do you think tariffs will impact inflation?” Buffett replied that “Over time, they are a tax on goods. I mean, the Tooth Fairy doesn’t pay them!” according to CBS News.
Despite CBS News reporting that Buffett deflected questions about the current news from Washington, some media outlets still linked Buffett’s comments to US President Donald Trump’s tariffs. CNBC mentioned in its article that last week, Trump announced that sweeping 25 percent tariffs on imports from Mexico and Canada will go into effect on March 4, and that China will face an additional 10 percent tariff on the same date. These tariff threats emerged at a time when concerns over Trump’s tariff policies were escalating within the US.
The New York Times published an article on Thursday with the headline: “US Economy Shows Signs of Strain From Trump’s Tariffs and Spending Cuts.” The piece noted that “consumer and business sentiment is wobbling as fiscal support fades and fears rise that tariffs will lead to higher prices.”
Currently, there are still differences among economists’ forecasts regarding the US economy. “It’s way too premature to conclude that recession dynamics are starting to take hold, but this could be a unique time when uncertainty does upend sentiment, and actually causes consumers to pull back,” Mark Zandi, chief economist at Moody’s, was quoted by CNN as saying on February 26.
While some analysts believe there are no signs of a recession yet in the US, the increasing headwinds facing the US economy have shifted a segment of public attention toward the downside risks to economic growth. In this context, it’s not surprising that Buffett’s comments on tariffs have garnered attention, reflecting, to some extent, domestic concerns over the negative impact of tariffs on the US economy. An increasing number of indicators suggest that additional tariffs will heighten economic downturn risks, a reality that should be acknowledged and addressed by US trade policy makers.
The tariff increases implemented and proposed by the Trump administration may backfire on inflation, supply chain stability, and the stability of financial markets in the US.
As it has been validated by the results of the last round of the trade conflict initiated by the US in 2018, import tariffs are borne by US importers and ultimately passed on to domestic consumers in the US. These tariff measures are expected to raise trade and operational costs for American businesses, likely resulting in a heavier burden on consumers. This, in turn, could drive inflation higher, eroding purchasing power and diminishing consumer confidence.
Additionally, American enterprises may face disrupted operations and diminished competitiveness in the global market, further complicating their ability to thrive. The job market could also suffer, with rising unemployment risks as companies adjust to the increased financial strain.
An increasing number of American economists and analysts have been warning about the negative adverse impacts of the US tariff hikes. According to an analysis by J.P. Morgan strategists on February 3, the Trump administration’s new tariff policy introduces significant unpredictability into the economic and market outlook.
Furthermore, estimates from Goldman Sachs suggest that under the baseline tariff scenario, US tariffs could reduce GDP by 0.2 percent while simultaneously increasing personal consumption expenditures by 0.4 percentage points.
These serious warnings and the growing consensus among economists in the US and around the world reveal that the US government’s tariff policy is founded on misunderstandings and misconceptions about tariffs. This misalignment could result in unintended consequences, negatively affecting global trade relationships and supply chains.
China on Friday expressed firm opposition to the US using the fentanyl issue as a pretext to threaten additional 10 percent tariffs on imports from China, with China’s Ministry of Commerce noting that deflecting the blame onto other countries will not help solve the US’ domestic problems, but rather place more burdens on American enterprises and consumers and harm global industrial chain stability.
The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn