Why Warren Buffett Thinks Tariffs Are ‘an Act of War’ — And How He’s Right or Wrong

In an interview with CBS News, billionaire investor Warren Buffett said, “we’ve had a lot of experience with [tariffs]. They’re an act of war, to some degree.” Many economists and international trade experts agree, even if they wouldn’t put it so bluntly.

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Here’s what the Oracle of Omaha means — and why most trade experts agree with him.

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Economic Force as a Policy Weapon

When one country wants to force another to do something they don’t want to do, they can use the threat of military force. Or they can use the threat of economic force, such as tariffs.

“Tariffs are designed not just to regulate trade but to force other nations into compliance,” explained George Carrillo, CEO of the Hispanic Construction Council. “It typically provokes retaliation, where both sides strike back, ultimately launching a trade war.”

And who pays for a trade war? The citizens of both countries — in the form of higher-cost goods.

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Spiraling Inflation

When asked about tariffs’ impact on inflation, Buffett replied: “Over time, they are a tax on goods. I mean, the Tooth Fairy doesn’t pay ’em.”

Businesses that import goods don’t just roll over and take the hit to their bottom line, either. They pass them on to consumers in the form of price hikes.

“Tariffs work like hidden taxes that raise prices on everything we use, from groceries to clothes to cars,” said Carrillo. “Businesses face higher costs, jobs are lost, savings and retirement funds shrink in purchasing power. It makes you wonder: Why are we the ones paying the price for these political power struggles?”

Greater Risk of True War

In his bestseller “The World Is Flat,” Thomas Friedman popularized the Dell Theory of Conflict Prevention. It posits that no two countries that share major global supply chains have ever fought a hot war.

If you hack apart those supply chains with tariffs, you not only launch a trade war but raise the risk of armed conflict. Fewer trade ties mean less economic incentive to keep the peace.

John Anwesen, international trade attorney with Lighthill, expands on this point.

“People in countries that trade with one another meet, exchange ideas, engage in business, and develop mutual dependencies,” Anwesen said. “Those interactions and interdependence makes them less likely to go to war.”

Free Trade Grows the Pie Rather than Cutting It

Proponents of tariffs and trade wars argue that the U.S. has somehow gotten short shrift in international trade. But free trade has actually proven extremely kind to the U.S. economy, not just its trading partners.

“The U.S. has 20% of the world’s GDP, 20% of the world’s money supply, and 5% of the world’s population,” noted Thomas J. Cryan, attorney and author of “Disrupting Taxes.” “The math tells us that international free trade has improved, and helped maintain, the U.S. economy.”

One way that free trade helps both countries to grow their economies is through specialization. Ever try growing coffee beans in the U.S.? International trade isn’t one-sided — it provides something of value to both parties. We wouldn’t do it otherwise.

“Free trade allows countries to specialize in what they do well and trade for what they don’t, and the result is a more efficient economy for all,” Cryan continued. “The protection of a few jobs never outweighs the efficiency and cost reductions of lower prices for a broad spectrum of goods, and the creation of jobs elsewhere in the economy.”

Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.

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