READ THE ORIGINAL
Published in full and free by Oaktree Capital Management. This page indexes its arguments; it is not a copy.
THE ARGUMENT
The third memo to carry this title, written a week after the April 2 tariffs. With no applicable facts and no analogous experience, only speculation is left, and anyone reaching a decision here with confidence is probably mistaken. He calls the tariffs so far an own goal, and expects the costs to land long before any gains.
What it actually claims
He restates his 2008 logic: positioning for catastrophe is ruinous when catastrophe does not arrive, and usually it does not.
- $10 billion sitting uninvested in Opportunities Fund VIIb at the time
Nobody is an expert here, since the modern era has produced no trade war on this scale against which to test the theories.
A forecast needs a sense of how likely it is right; and declining to act is itself an act, to be scrutinized like any change.
The catch is second- and third-order effects: economies are made of people, so reactions are often significant and unpredictable.
Tariffs are taxes on imports, and while the importer pays at the border, he says the cost is usually passed to the consumer.
- US consumer durable prices declined 40% in real terms between 1995 and 2020
- total inflation averaged only 1.8% per year over that period
Reshoring meets capacity he doubts exists, factories that take years to permit and build, and probably too few skilled workers.
- the US went from importing 330 Volkswagens in 1950 to more than 400,000 in 2012
- a reported 1,000 US steel jobs saved by the 2018 tariffs against 75,000 lost in steel-using industries, which he says he cannot vouch for
His larger worry is the golden credit card: a world investing less in the US and its Treasurys would change the fiscal arithmetic.
- fiscal deficits in each of the last 25 years and all but four of the last 45
- trillion-dollar-plus deficits in each of the last five years
- a $36 trillion national debt
In credit, default fear widened spreads while a flight to Treasurys cut their yields, raising available yields on net.
Figures are the author's own, as cited in the memo.