The Motley Fool

What Warren Buffett Says About the US-China Trade War

In a recent interview with CNBC, the Oracle of Omaha, Warren Buffett, touched on a topic that’s probably on many investors’ minds: the US-China trade war.

He said that a trade war between the two giant nations would be “bad for the whole world.” The interview came after US President Donald Trump tweeted on 5 May that he will raise tariffs on US$200 billion of Chinese imports to 25%, up from 10%, beginning on 10 May. China said it would retaliate.

Thus far, the S&P 500 index has fallen from a peak of 2,946 points on 3 May to 2,834 on 14 May, down around 4%. Intraday, the index has tumbled even lower. Major indices around the world were not spared, either. The Hang Seng Index declined by 6.5%, while the Straits Times Index went south by 5.2% during the same time frame.

Buffett added that a full-scale trade war is unlikely, but if it happened, it would be bad for everything his company, Berkshire Hathaway, owns.

Buy more shares

Despite the lingering concerns, Buffett said it would be “nonsense” for investors to sell their shares based on negative headlines. He added that the US and China will be the world’s superpowers for the next 100 years and will always have tensions.

In fact, he said he would buy the same stocks today that his company was “buying last week.”

And that’s what investors should do, too.

Stock markets swing up and down based on emotions. We shouldn’t let our actions be swayed by what the market does. A downtrending stock market, like now, presents an opportunity to buy stocks on the cheap.

In his 1994 letter to Berkshire Hathaway shareholders, Buffett gave a mini-lesson on long-term investing (emphases mine):

“We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors and businessmen.

Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage and price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%.

But, surprise — none of these blockbuster events made the slightest dent in Ben Graham’s investment principles. Nor did they render unsound the negotiated purchases of fine businesses at sensible prices. Imagine the cost to us, then, if we had let a fear of unknowns cause us to defer or alter the deployment of capital. Indeed, we have usually made our best purchases when apprehensions about some macro event were at a peak. Fear is the foe of the faddist, but the friend of the fundamentalist.”

The Foolish takeaway

From 1965 to 2018, the Oracle of Omaha managed to generate a fantastic annualised return of 20.5% for his shareholders.

During those five decades, the world has seen numerous stock market booms and busts, with the most recent one being the 2007-2009 Great Financial Crisis. Interspersed between those booms and busts were market corrections and blips. Even amid the volatility, Buffett stuck to his stock-picking ways with discipline and patience and created massive shareholder returns. The current trade war could present some buying opportunities for investors, but are you prepared to be greedy when others are fearful?

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore recommends shares of Berkshire Hathaway. The Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.