Trade Wars and Economic Wounds: Navigating Uncertainty with Defensive Strategies

The global economy is at a crossroads, buffeted by two self-inflicted “own goals” of historic proportions: the U.S. tariffs under Trump and the UK's Brexit decision. As Howard Marks of Oaktree Capital warns in his 2025 memo, these policies risk repeating the economic dislocation seen during the 2008 financial crisis and the UK's post-Brexit decline. Investors must now navigate a landscape where protectionism, inflation, and geopolitical tension reign. The question is no longer whether these policies will disrupt markets—it is how to position portfolios to weather the storm and capitalize on mispriced opportunities.

Historical Parallels: When Nationalism Collides with Economic Reality

Howard Marks' analogy of tariffs and Brexit as “own goals” hinges on their unintended consequences. The UK's 2016 Brexit vote, driven by nationalist sentiment, has already cost it 3% of GDP, strained its alliances, and eroded its reputation for governance stability. Similarly, the U.S. tariffs—particularly the 10% blanket tariff and the 145% effective rate on Chinese imports—risk triggering a trade war with global repercussions.

The parallels to the 2008 financial crisis are stark. Marks noted in his 2008 memo that Lehman's collapse created a “Nobody Knows” environment of unpredictability, much like today's tariff-driven uncertainty. Both events upended established economic models: in 2008, the assumption of stable housing prices; today, the reliance on open trade.

Market Dislocation: Volatility as the New Normal

The immediate impact of tariffs is clear: higher inflation, equity selloffs, and a flight to safety. The S&P 500's 10.5% drop in early 2025—driven by tariff fears—mirrors the post-Brexit sell-off. Meanwhile, gold hit record highs, and bond yields surged as investors priced in recession risks. Goldman Sachs now pegs the U.S. recession probability at 45%, up from 20% in 2024.

Longer-term, tariffs threaten to unravel decades of globalization. The 1995–2020 era of free trade kept inflation low for durable goods, but tariffs could reverse this. Marks cites the 2018 steel tariffs as a microcosm: they backfired by raising costs for auto and construction firms, costing more jobs than they saved.

Defensive Strategies: Anchoring Portfolios in Uncertainty

Investors must prioritize resilience over growth. Here's how:

1. Diversify Geographically: Reduce reliance on U.S.-China trade exposure. Look to regions like Southeast Asia, where supply chains are diversifying, or emerging markets with undervalued currencies.
2. Inflation Hedges: Gold and Treasury Inflation-Protected Securities (TIPS) are critical. Consider commodities like copper or palladium, which could benefit from supply chain bottlenecks.
3. Defensive Equities: Sectors like healthcare (e.g., ), utilities, and consumer staples have historically outperformed during volatility.
4. Private Credit: Opportunities in private debt—such as senior loans or mezzanine financing—are less correlated with public markets. Focus on sectors with stable cash flows, like infrastructure or healthcare.

Reassessing Supply Chains: A New Paradigm for Global Trade

Marks warns that tariffs could permanently alter trade dynamics. Companies with overly concentrated supply chains—tech giants reliant on Chinese semiconductors, or automakers dependent on U.S. steel—face heightened risks. Investors should favor firms with diversified suppliers or those shifting to “nearshoring” strategies (e.g., Mexico or Eastern Europe).

Conclusion: Prudence Over Patriotism

Howard Marks' analogy underscores a truth: economic policies rooted in short-term political goals often backfire. Tariffs and Brexit are not just about trade—they're about the erosion of trust in global systems. For investors, the path forward is clear: prioritize liquidity, diversification, and assets that thrive in uncertainty.

The “Nobody Knows” era demands humility. As Marks reminds us, the consequences of today's policies may not be fully known for years. But by focusing on defensive strategies, inflation hedges, and undervalued opportunities in overlooked markets, investors can turn self-inflicted wounds into asymmetric upside.