"Own goal" - Howard Marks compares Trump's tariffs to Brexit misstep in latest memo

Marks described the tariff developments so far as an “own goal”

Oaktree Capital’s Howard Marks has described as “own goal” the tariffs imposed by US President Donald Trump and warned of a swift economic fallout, with any potential gains far off. In his April memo “Nobody Knows (Yet Again),” released before Trump on April 9 announced a tariff pause for all but China, likened the president’s move with Brexit, causing possibly a lasting damage.

Marks observed that while the tariffs were introduced with the intent to support US manufacturing, encourage exports, discourage imports, reduce the trade deficit, push trade negotiations, and boost revenue for the US Treasury, they also risk causing major ripple effects. These include retaliation from trading partners, higher prices or inflation, reduced consumer spending, job losses, a possible recession, and disruption to global trade dynamics.

He noted that even if tariffs succeed in bringing manufacturing back to the US, the country currently lacks the infrastructure.

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“I doubt there is a factory in the US capable of producing flat screens for TVs or computers. It would take years to build enough capacity to satisfy a meaningful percentage of US demand,” Marks said. In the meantime, this could result in shortages or higher prices - likely the old prices plus the added tariffs.

He also highlighted the lack of sufficient skilled workers in the US to replace the vast labor force in China and other developing countries that currently manufacture goods for American consumers. Marks questioned why Americans have favored imported goods to begin with—because they have been cheaper.

“Even if tariffs are set high enough in the future to render US-made goods cheaper than imports with tariffs, the prices will still be higher in absolute terms than Americans are used to paying. For example, a smartphone made in the US might cost $3,500,” he noted.

Marks reflected on the benefits of globalisation since World War II, emphasising how it has raised global living standards. Countries have specialised in what they do best, and as a result, the entire world - including the US - has prospered.

Many Americans, he explained, have enjoyed a higher standard of living thanks to the ability to import affordable goods from lower-wage countries. While the shift led to the loss of some US manufacturing jobs, it made consumer goods widely accessible and affordable - explaining why most non-food items at Walmart are imported.

Ultimately, Marks described the tariff developments so far as an “own goal”—a self-inflicted misstep, much like Brexit. “We know how that turned out. Brexit cost the British mightily in terms of GDP, morale, and alliances, and it harmed their reputation for governance and stability. All of this damage was self-inflicted,” he wrote.

He recalled how just a couple of months ago, the US economy was doing well, with a positive outlook, an all-time high in the stock market, and renewed confidence in American exceptionalism. Now, if Trump’s tariffs are implemented fully, the US economy could face a recession sooner than it would have otherwise, along with higher inflation and widespread disruption.

Marks also pointed out that the Federal Reserve’s next steps remain uncertain. The looming threat of a recession might prompt accelerated rate cuts to stimulate the economy, while inflation concerns might delay those cuts.

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