The legendary investor Warren Buffett may have a gift for recognizing risks and anticipating disasters, but he was off the money last year when he predicted there wouldn't be a trade war between the US and China.
"I don't think either country will dig themselves into something that precipitates and continues any kind of real trade war," Buffett, often known as the Sage of Omaha, said at Berkshire Hathaway's annual shareholder meeting in May 2018.
While he predicted some "back and forth," he said that trade benefited world progress and that therefore two "intelligent countries" wouldn't "do something extremely foolish."
Since those comments, the US and China's strained relationship has devolved into a tit-for-tat trade war. Most recently, US trade officials accused Chinese officials last week of reversing their agreed commitments in a draft trade pact, prompting President Donald Trump to announce a new round of tariff increases.
The US hiked tariffs to 25% from 10% on $200 billion worth of Chinese goods. In retaliation, China announced plans to raise the rate of tariffs to as high as 25% on $60 billion worth of US products starting June 1. The White House is now preparing to expand duties to a further $300 billion of Chinese goods in the next month.
Buffett's analysis about the benefits and importance of trade, however, seems to have been validated. Studies suggest the latest tariffs could raise the average American household's annual costs by about $800 and temper economic growth in the US, China, and globally.
