In a recent interview with CBS News, Warren Buffett expressed dire concerns regarding US President Donald Trump’s trade tariffs.
The CEO of Berkshire Hathaway (NYSE: BRK.B) likened trade tariffs to an “act of war“.
“Over time, they are a tax on goods”, he explained, and could send inflation soaring.
The tariffs include a 25% levy on imports from Canada and Mexico and a 20% levy on imports from China. They came into effect at midnight on Tuesday, 4 March, 2025.
Experts fear the economic effects of the tariffs could seriously hurt the US stock market, particularly in the automotive sector.
This week, the Nasdaq 100 and S&P 500 fell to their lowest levels since Trump won the election in November 2024. Meanwhile, the Dow Jones is down 5.5% in the past month.
Retaliatory action
In response to the tariffs, Canada and China have announced retaliatory measures. Canadian Prime Minister Justin Trudeau criticised the move as unnecessary and harmful. China has increased tariffs on US agricultural products and filed a complaint with the World Trade Organisation.
The issue has caused an international outcry, as businesses face the devastating effects of a trade war. Economists have warned that such disputes could disrupt supply chains, drive up inflation, and negatively impact both importers and exporters.
Buffett’s game plan?
Seemingly in preparation for the fallout, Berkshire Hathaway has recently been selling large swathes of equity and stockpiling cash. Such defensive action could be interpreted as safeguarding against market volatility.
But not all funds are following suit, leaving many to question Buffett’s motives. Some believe it could be part of a broader plan to reduce large positions as he prepares for his succession.
Either way, market volatility is quickly becoming the status quo in 2025, so planning accordingly may be the best bet.
Berkshire’s defensive characteristics
Preparing for a market downturn is all about risk management and staying disciplined. With markets at risk of further turmoil, investors should consider the wisdom of Buffett and the benefits of investing in Berkshire Hathaway stock.
Here are some best practices to follow:
To reduce risk, diversify investments across different asset classes like stocks, bonds, and commodities. Berkshire is moderately diversified, with a focus on high-quality companies like Mastercard, Coca-Cola, and Apple. With strong balance sheets, low debt, and consistent cash flows, these companies tend to weather downturns better. Unfortunately, this singular focus on US stocks puts Berkshire at higher risk from localised economic issues. UK stocks for investors to consider include AstraZeneca and BAE Systems.
Think about shifting towards stocks with stable earnings and strong dividends, such as utilities, healthcare, and consumer staples. Examples of defensive stocks in Berkshire’s portfolio include the consumer staples giant Kraft Heinz and credit rating agency Moody’s. In the UK, Unilever is a good example.
Focus on long-term growth rather than short-term fluctuations. While Berkshire is undoubtedly one of the most successful funds of our time, its sustainability is in question. Recently, concerns have arisen regarding the imminent departure of Buffett. There’s a risk the fund’s success will falter without his guidance.
Stockpile cash or short-term bonds to take advantage of buying opportunities when prices drop. This strategy has helped Berkshire in the past to secure cheap stocks, like Goldman Sachs and General Electric during the 2008 financial crisis.
