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Was Warren Buffett Too Optimistic about US-China Relations?

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Dec. 17 2018, Updated 12:35 p.m. ET

Warren Buffett

During Berkshire Hathaway’s (BRK-B) annual shareholder meeting, Warren Buffett sounded optimistic about US-China trade relations. He said, “I don’t think either country will dig themselves into something that precipitates and continues any kind of real trade war.” Buffett also added, “It’s just too big and too obvious, the benefits are huge and the world’s dependent on it in a major way for its progress that two intelligent countries will do something extremely foolish.”

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Trade war

Buffett made these comments in May. Since then, what we’ve seen is a major escalation in the US-China trade war. The two countries have imposed tariffs on billions of dollars of each other’s goods. Although we saw some de-escalation after the meeting between US President Donald Trump and Chinese President Xi Jinping in Argentina, there seems to be a long and bumpy road ahead for US-China trade relations. Alibaba’s (BABA) Jack Ma previously predicted that the US-China trade war might last decades.

To be sure, China has taken some measures to reassure Trump, and the country has reportedly started buying US soybeans. It has also agreed to lower duties on US automotive goods. The move should help Tesla (TSLA) better compete with Chinese rival NIO (NIO).

President Trump

Meanwhile, Trump has continued his hard talk on trade. In a tweet, he called himself a “tariff man.” The tweet led to a sharp fall in US equity markets (SPY). However, since that tweet, Trump has been more circumspect about tweets on US-China trade talks.

In 2015, Berkshire acquired Precision Castparts, which supplies aircraft components. However, that space has had a turbulent time since then, which we’ll discuss in the next article.

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