Oak Tree Capital Co-Founder Warns Trump Tariffs Could Cause Economic Instability

Howard Marks, co-founder of Oak Tree Capital, has drawn a parallel between the economic impact of Donald Trump's tariff policies and the consequences of the United Kingdom's decision to leave the European Union. Marks likened Trump's tariffs to an "own goal" in football, a self-inflicted wound that could have far-reaching economic repercussions. He emphasized that even if the tariffs are eventually reversed, the damage could already be done.

Marks' comparison to Brexit highlights the potential for significant economic disruption. Brexit has already had profound effects on the UK's GDP, national morale, and international alliances, all of which were self-inflicted. The uncertainty and potential economic fallout from Trump's tariffs could similarly lead to a period of economic instability and reduced global trade.

In his latest investor memo, Marks expressed a longing for a bygone era of global cooperation and mutual benefit. He acknowledged that he does not have all the answers but remains skeptical of current policies. Marks' memo underscores the unprecedented uncertainty and potential long-term changes to the global trade system.

Marks' memo delves into the historical context of economic crises, comparing the current situation to the 2008 financial crisis. He noted that during times of extreme uncertainty, no one can truly predict the future. Investors, he advised, should not be paralyzed by fear and uncertainty but should seek out undervalued assets in the market. In this unprecedented environment, decisions must be made without certainty, recognizing that fundamental changes in the global trade system could have profound impacts.

The memo also discusses the potential for a prolonged period of economic uncertainty, similar to the aftermath of the 2008 financial crisis. Marks highlighted that the current situation is marked by a lack of reliable data and historical precedents, making it difficult to predict the outcomes of Trump's tariff policies. He cautioned that the economic fallout could be severe, with potential impacts on global trade, inflation, and economic growth.

Marks' analysis underscores the complexity of economic decision-making, particularly in the context of trade and tariffs. He noted that while the stated goals of Trump's tariffs—such as supporting domestic manufacturing and reducing trade deficits—are understandable, the actual outcomes could be far more complex and unpredictable. The memo also discusses the potential for retaliatory measures from other countries, which could exacerbate the economic fallout.

Marks emphasized that the negative impacts of the tariffs are almost immediate, and while there might be long-term benefits, the short-term consequences are already evident. He warned that even if the tariffs are completely removed, other countries are unlikely to forget the incident and may reconsider their relationships with the United States.

In conclusion, Marks' comparison of Trump's tariffs to Brexit serves as a stark reminder of the potential for self-inflicted economic harm. While the long-term effects of Trump's tariffs remain uncertain, the immediate impacts could be significant, with potential repercussions for global trade, economic growth, and international relations. Marks' memo serves as a call to action for investors to navigate this uncertain environment with caution and a keen eye for undervalued opportunities.